Selling a Rental Home With Tenants is Even Harder on a Short Sale

By
Real Estate Agent with RE/MAX Gold DRE #00697006

selling a rental with tenantsSelling a rental home that is occupied by tenants presents its own special set of challenges. That's why whenever I sold one of my own investment properties, I would not put that home on the market until it was vacant. Tenant cooperation is essential. However, not every tenant wants to cooperate with showings, even though most residential leases say the owner has the right to enter the property with 24-hours' notice.

When I see an otherwise attractive listing on MLS with a high number of DOM, it's often a home that is occupied by tenants. The scenario goes like this. The buyer's agent calls to make an appointment. Buyer's agent shows up at the appointed time and nobody answers the door. There is no lockbox. Agents know this can happen, which is why some agents won't even make an appointment. Some of them will pass up a home with tenants. Not to mention, some agents don't want to make appointments when there are so many other homes to show that are vacant and require no contact whatsoever.

Why don't tenants want to cooperate? Because there's nothing in it for them. Their lives are disrupted, strangers are pawing through their closets and it's an inconvenience.

If tenants do agree to show the home, it's possible the tenants could be harboring a secret grudge against the owner. That animosity will come out during the showing. If there is anything wrong with the home, the tenants will point it out to the potential buyers. Even if there's nothing wrong, who's to say the tenants won't try to sabotage the showings anyway? They don't want to move.

Sometimes, the homes are not tidy and in perfect showing condition. That's not to say that all tenants are slobs, but hey, some of them could at least pick up the clothes on the floor, get the dishes out of the sink and make their beds.

When a rental home goes on the market as a short sale, sometimes tenants get upset when they discover the owner has not been making the mortgage payments. They might feel as though they don't to pay rent anymore even though they do. Moreover, complications can arise with the short sale bank when that bank looks over the seller's financials. That rental payment becomes income to the seller. The bank can see that the seller has been putting the rent into the seller's pocket and not paying the bank. Apart from irritating the bank, that income to the seller could mean the seller does not qualify for a short sale.

Moreover, in California, many deeds of trust contain an assignment of rents. This means the bank could collect the rent directly from the tenant if the seller stops making mortgage payments.

So, what's a seller with an occupied rental home to do? Give the tenant notice. Regardless of whether the home is a short sale or a traditional sale, sellers who own rental property will have a better chance of obtaining a higher price and selling faster if the home is vacant. If an owner can't get the tenant out, then try providing a financial incentive to the tenant to cooperate. That's what tenants want. Is that blackmail? Yeah, it is, but one could view it as a cost of doing business as it could mean the difference between selling and not selling.

Sometimes, though, retaining the tenant can be to a seller's advantage. That happens when the likely buyer for the home will be an investor. Investors like income from day one. A tenant-occupied home can give an investor immediate cash flow. If tenants know a new owner is coming through to see the home, those tenants might be on their best behavior, too. Why? Because they don't want the new owner to raise their rent or give them notice to move.

Before putting a rental on the market, assess the situation with a real estate agent. Discuss the pros and cons of leaving the tenant in the home versus showing the home vacant. Work out a plan. Because the worst thing a seller could do is stick a sign in the yard without talking to the tenant.

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elizabeth weintraub

 

 

Weintraub and Wallace Realtors

 

 

Elizabeth Weintraub reviews

 

 

 

Elizabeth Weintraub is co-partner of Weintraub & Wallace Team of Top Producing Realtors, an author, home buying expert at The Balance, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown, Carmichael and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Call Elizabeth Weintraub at 916.233.6759. Put our combined 80 years of real estate experience to work for you. Broker-Associate at RE/MAX Gold. DRE License # 00697006.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of RE/MAX Gold. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

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Rainer
24,955
Cheryl & David Skolnick
Keller Williams - Rancho Cucamonga, CA

Great Post Elizabeth, it can be very difficult to sell a home when you have occupants who do not want to be very cooperative, but we gotta do what we have to do.

Apr 26, 2010 07:54 AM #1
Rainmaker
756,114
Adam Malachi
A 2 Z Realty LLC - Castle Rock, CO
QSC,CDPE,CIPS,CNE,CRB,CRS,GRI,MRE,SFR

Very good post! It's very hard to listing a short sale! With tenants it's almost impossible to sell!  

Thanks for sharing.

Adam

Apr 26, 2010 08:10 AM #2
Ambassador
2,860,652
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I recently "unlisted" a property with tenants.  They refused every reasonable request for showings and never cleaned and even began to let the yard go.  They don't want to move and it got to be a waste of time and money.  I told my seller "good luck" selling with those renters in there.

Apr 26, 2010 08:42 AM #3
Rainmaker
685,325
Cynthia Larsen
Cotati, CA
Independent Broker In Sonoma County, CA

Elizabeth - it is also hard to get the tenants to move out once an offer has been ratified.  It is just too much grief on both sides.  Unless I'm working with an investor buyer, I discourage showing tenant occupied properties at all.

Apr 26, 2010 10:34 AM #4
Rainer
112,087
Cari Anderson
Danville, CA

Elizabeth: fantascit advice.  You're right - tenants usually have no incentive to keep the place in showing condition and I've seen many properties displayed on broker's tour where you just KNOW it's tenant-occupied due to the fact that their dirty breakfast dishes are still in the sink. Please!

Apr 26, 2010 10:53 AM #5
Rainer
387,459
Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

Elizabeth - I have one right nowand yes the situation is difficult.  No way around the current circumstance and I will do my best to persevere and work with all parties involved to make it work.

~ Doug

Apr 26, 2010 01:56 PM #6
Rainmaker
627,517
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Hi Elizabeth, I agree, there is usually no incentive for the tenants to cooperate,(unless one is offered.)  I imagine it can be very difficult but not impossible!

Apr 26, 2010 02:11 PM #7
Rainmaker
627,517
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Hi Elizabeth, I agree, there is usually no incentive for the tenants to cooperate,(unless one is offered.)  I imagine it can be very difficult but not impossible!

Apr 26, 2010 02:11 PM #8
Rainmaker
885,945
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Tenant occupied short sales are only a nightmare when the landlord is not doing their job, that is my experience. We've had cooperative tenants with good relationships with their landlords. But we've also had uncooperative resentful tenants who had a beef with the landlord. 

Apr 26, 2010 03:24 PM #9
Rainmaker
298,297
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

Elizabeth,
I have been there beforfe and tentans really don't care or they are not very cooperative to show a short sale home, great info that you shared.

Apr 26, 2010 04:44 PM #10
Ambassador
1,721,152
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Elizabeth,

this is a very good post. And so often the tenants are not really cooperating, and demand 24 hour notice, and in this market when people are passing by and will be back in New York the next day, it is very difficult

Apr 26, 2010 04:59 PM #11
Rainmaker
2,189,557
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

I'd say my experience with tenant-occupied homes is about 20% cooperate and 80% do not. It may be a regional thing, though.

sacramento short sale agent

Apr 27, 2010 03:38 AM #12
Rainmaker
601,332
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Elizabeth - OY VEY!  Don't even get me started on pain in the @$$ tenants.  I would venture to say that your percentages are probably very similar to LA & Ventura counties as well.  Maybe it's a Cali thing?  LOL

Apr 28, 2010 05:40 AM #13
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