What is a seller leaseback?
What is a seller leaseback and why is it so important in today’s real estate market?
A seller leaseback is simply a transaction in which the seller sells his or her home and then leases that same home back from the new buyer. If the agreement is written property, it will benefit both buyer and seller.
As a seller, you would benefit the most. There are additional risks that the buyer must take to agree to such a deal. As you may be aware, we are experiencing an absolute seller’s market in a low inventory environment. When I ask home owners what their largest concern is in selling their homes right now, they tell me that they may not easily find their next home because of the housing shortage. For many sellers, renting month to month is not an option either. Rent in the Phoenix Area has never been so high and they too are also experiencing their own housing shortages. Plus, there’s that always the pain of moving twice.
How can a seller leaseback help me?
Reduces the stress of finding next home under 30 days
With extreme pressure mounting, many sellers are terrified that they’ll be living on the streets if they can’t find something in under thirty days. The leaseback is a perfect solution. It allows the seller to be more comfortable finding their next house or rental – without the stress of packing, moving and desperately searching for another house in under thirty days. Further, sellers know that finding their next home with a contingency would be out of the question for the next home seller.
Quickly unload home for most money in case the market corrects
Other sellers believe that the market will correct itself and it’s just a matter of time before home values decrease. Whether that’s true or not, selling their homes for the most money possible is their ultimate goal. The last thing home sellers want to do (in their minds) is go down with the ship when home values decrease. They want to be cut loose of ownership with lots of money in hand ready to purchase those foreclosures.
In this blog, I’ll mostly focus on the leaseback from the seller’s perspective. I’ll outline the risks and consideration of the home buyers in another article.
This is not a cut and dry option by any means. The right buyer needs to be one that doesn’t have to move in as soon as the purchase is completed. The buyer may, however wish to make changes to the home such as repainting, repairs and more while the seller occupies it. The buyer will also need to insure, pay taxes and address HOA fees on the home – because it’s theirs now.
What’s the seller’s obligation to the buyer once the purchase is complete?
The seller essentially becomes a tenant to the new buyer. A lease agreement would need to be drawn up and attached to the purchase contract before close of escrow. Buyers, unless they live for free with a relative or friend, will have double living expenses at this point. Many buyers in this situation will not be able to proceed with a leaseback unless the seller pays them a mutually agreed amount for the entire time, they occupy the home. In addition, buyers will want assurances from the seller that they will move out and not damage the property by the end of the leaseback agreement.
In order to make this all work, a legal agreement is required between the tenant (old owner) and the buyer (new owner). Realtors have AAR Lease forms both parties can use, but it’s highly recommended that the Buyer and Seller seek legal advice before entering into such an agreement.
So. The leaseback is in place for 90 days and the sale proceeds are safely in the bank. Don’t delay looking for your next home! Hire a Realtor who will stop at nothing to find you that next home. Removing that contingency to sell your home first was the first step. If you haven’t already pre-qualified for a new home, this is absolutely the right time.
What if your leaseback agreement is almost over and you haven’t found a new house yet?
You can do one of two things. Go back to the owner and agree on an extension for more time, or move in with friends, family or into another rental temporarily. The new owner has plans to live in your old house and may need to be out of their previous home too. Whatever you do, don’t make them evict you.
This is a nice theory, but will a leaseback work in today’s real market?
Now, more than ever is the time to do a leaseback. Buyers are waiving appraisals, paying $30,000 over the listing price and offering other desperate concessions, it’s not surprising that agreeing to a leaseback would be another way the buyer can win the contract. As mentioned previously, sellers are calling the shots for now. They decide to choose one buyer out of dozens to buy their house. A buyer agreeing to a leaseback can be very attractive.
Additional Seller LeasebacK Resources
- What Is a Seller Leaseback? via Roxanne Minott
- Seller Leaseback Sample Clauses via Law Insider
- Setting the Sale Price and Rental Rate for a Sale-Leaseback via Margarita Foster
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About the Author: The above article, A Seller Leaseback Can Give You More Time to Find a Home was written by Troy J. Elston, a licensed Realtor at West USA Realty, the premiere real estate brokerage based in Peoria Arizona. With years of experience in the real estate industry, Troy produces stunning results for home buyers and sellers. If you’re thinking of BUYING or SELLING a home in the Phoenix Area, Troy would love to share his knowledge and expertise with you.