Selling 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.