Say What? The Seller Want to Stay in the House After Closing
A leaseback is a popular word that is used in our Dallas-Fort Worth real estate market area. Almost every home lately our buyers have submitted an offer on have required the buyers to allow the sellers a seller’s temporary lease agreement. As a matter of fact, I have seen lease agreements request anywhere from 3 to 30 days depending on the house, area, and school the house feeds into. So if the buyer wishes to submit an offer for a particular home they usually have to determine upfront whether this is something they agree to and if not, they will take a chance of the seller not willing to review their offer. So the market we are currently in, a sellers' lease back agreement would be an additional agreement that would be part of the contract. It would also be stated in paragraph 10 of the TREC 20-13 residential one to four contract. The TREC one to four contract is the main contract with all the terms for the seller to verify including when the buyer will take full possession after the lease agreement expires.
What is a Seller’s Leaseback?
What is a leaseback? A seller’s leaseback occurs when the buyers and sellers have closed on the property, but the buyer will not take possession or move into the property for a certain number of days, normally its three-five days but less than 90 (ninety) days. During this time, the buyer now becomes the landlord and the seller will become the tenant. A lot of times, this type of lease is put into place because either the sellers don’t want to move twice, the money is needed to purchase another home, or just to ensure the closing will take place. Sometimes sellers move out of the house without a leaseback and for some unfortunate reason, the house doesn't close. Think of the lease back as insurance for the seller. This assures the seller that once they move out of their home, there are no worries that they will have to move back in because the property didn't close. For example, we’ve had a case where the seller moved out the house, had moving trucks ready to go and the buyers couldn't complete the purchase because they bought a car which is something the lender and realtors suggest never to do when in the process of buying a house. Not just a car, but any big ticket items. So this hiccup prevented closing from taking place. However, if the seller would have had a leaseback in place then this could have been prevented because the sellers would not have moved out of their house before the house closed and the money from the closing was in their account.
How Does a Leaseback Work?
The buyer’s agent will prepare a lease agreement on the buyer's behalf who are now the landlords with 19 paragraphs for the sellers who are now the tenants to sign. Each paragraph will outline the terms of the agreement. The terms of this lease will be reviewed and all items are negotiable between the seller and buyer. The paragraphs in the contract that are usually a big concern for our clients when signing a seller's temporary lease agreement are paragraph 4 rental, paragraph 5 deposit amount, and paragraph 19 holdover. Once the lease agreement is completely filled out and signed by the buyers, this lease agreement will be given to the seller for signatures or to negotiate additional terms that are agreeable to all parties.
The rental amount usually reflects a zero dollar amount because the term is usually for a short period, and since most of our leasebacks are only for a short period usually two to three days, we never require a daily dollar amount in this paragraph. However, the buyer (landlord) does have the option of inserting a rental amount required per day, but again it's not encouraged for a short term lease. On the other hand, if a dollar amount is used the amount is calculated based on the buyer's mortgage including PITI (principal, interest, taxes, insurance) . This number would then be divided by 30 to come up with a rental amount per day. For example, if the mortgage amount is $2,000 divide that by 30 days ( # of days in the month) which equals $67 per day. This $67 amount would then be placed in paragraphs #4 if the buyer decided to charge the seller per day for leasing the house back. This formula is normally used to figure out the calculation for dollars per day.
A deposit amount can be used to protect the buyer in case the property occurred damaged while the sellers are currently living there. In fact, we suggest to our buyers to take interior pictures of the house during the walk-thru so that way they will feel comfortable, and aware of any damage to the property while the sellers are currently living there. By all means, it is such a norm to have a leaseback in place, and sellers usually take care of the home because they have a lot invested, but there could be times when a buyer move in and discover things that were not present during the walk-thru. So, having the sellers provide a deposit can be a way to protect the buyers, and give them a piece of mind knowing that the sellers will either take care of the house, and keep it in the current condition when the buyers closed on the home, or a monetary amount will be given to the buyers for damages. For fear that the house is not kept in proper condition, the buyers can request to have their final walk thru with the sellers, and if the house is still in good condition, then the deposit can be given back to the sellers during that time or released from the escrow company with the buyer's consent.
The purpose of having the holdover rate in place is to encourage the tenant that consequences will be given if the property is not vacated by the date assigned in the lease agreement. Therefore, to prevent a tenant from staying longer than needed, a strong holdover rate should be put in place. This rate should be a number that will influence the tenant to vacate the property when the contract expires or a fee will be required. In my past experiences, we never had a client to stay longer than the days allowed per the contract, but to have additional protection, a holdover fee should be in place. If the landlord agrees to allow the tenant to pay the holdover fee then the tenant will be in compliance. However, if the tenant refuses to leave the property or pay the holdover fee, then landlord can take legal actions to have the tenant removed. So the holdover fee protects the landlord from uncertainties that can take place for staying past the expiration date per the lease.