what is a rent back?

What is a Rent Back? 

July 22, 2020 | Buying a Home | By: The Goodhart Group

Whether you’re buying or selling a home, you may come across the term “rent back.” The rent back is a simple, useful agreement in a real estate transaction that can also be an excellent negotiating tool!

First Things First: What is a Rent Back? 

Formally known as a “seller’s post settlement occupancy,” rent backs occur in a transaction in which the buyer agrees to rent the new home back to the seller for some set amount of time — after the closing date. Rent backs are quite common in our market! They are typically arranged to give sellers a chance to close on their new home and pack for their move. Rent backs also allow sellers to make a non-contingent offer on their next home or to complete construction projects on the new house.

Rent backs help sellers avoid two moves and/or finding interim housing.

How Does a Rent Back Work?

The buyer closes on the house and then allows the seller to rent back from them. The buyer will typically charge the seller his or her daily carrying cost based on PITI, but sometimes the rent will be a flat fee, or the buyer may even allow the seller to rent back for free in a competitive situation

The buyer will also charge a refundable deposit to ensure against any damage to the home while the sellers continue to live in it. The sellers essentially become the buyer’s new (temporary) tenants. 

Rent backs last up to a maximum of 60 days (if a lender is involved), with the buyer selecting how many days when they submit their offer on the property. If the seller moves out early, buyers can select an option in the contract either agreeing to refund the unused portion of the rent back or not to refund the unused portion of the rent. Deciding which option to select depends on the exact situation of both parties and how competitive the offer situation is for the house in question.

Two important things to note: Rent back agreements are legally binding. As noted in the post-settlement occupancy agreement, the seller shall maintain and repair the property, including electrical, plumbing, existing appliances, heating, air conditioning, equipment, and fixtures in “substantially the same condition “as of Settlement Date (except as otherwise agreed in writing).

Why Would a Buyer Offer a Rent Back?

Including a rent back option when making an offer on a home is quite enticing to sellers (depending on their situation). An offer with a rent back option often becomes the winning offer in a competitive market if it is beneficial to the seller. We have even seen some buyers offer a rent-back at no cost to the sellers to ensure a winning contract! The rent back period also allows extra time for the buyer to pack and prepare for the move. 

The Bottom Line

In most cases, rent backs are mutually beneficial agreements. As a buyer, unless you are on a strict timeline to be in a new home, it is wise to offer the sellers the ability to rent back. Offering a rent back may just be the term that tips the scales in your favor! Just remember that rent backs are legally binding, so be sure your timing aligns with the sellers.

First time home buyer? Be sure to download our guide, created just for you.

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