Select Page

Seller rent back after close of escrow: what do you need to know?

Forms Vary for Seller Rent Backs!If you are buying or selling a home in Silicon Valley today, you may be considering including the option to have a “seller rent back” after close of escrow. What does this mean? This is often referred to as “seller in possession after close of escrow” (often shortened to SIP) or “seller occupancy after sale”, or for more than 29 days, the “residential lease after sale” (RLAS)  and it’s not uncommon in the San Jose or San Francisco Bay Area now.

Most of all, a rent back means that after the sellers have been paid and the new owner is on record, the seller stays on as a tenant and the buyer takes on the role of a landlord. The buyer as the new owner will carry home owner’s insurance (mandatory if there is a mortgage – the lender will insist) and gets a set of keys.

The terns for this tenancy relationship are drawn out in a separate addendum to the purchase contract. Depending on how long the term will be (less or more than 30 days) and which purchase agreement form is used (PRDS or CAR) the paperwork varies a bit. Whichever form you use and whichever side of the rentback you are on, here are some key points to keep an eye on:

  • Amount of security deposit, if any
  • Amount of rent being charged, if any
  • Length of the rent back or lease (most buyers have loans, and most lenders start attaching fees to rentbacks longer than 29 days and do not permit more than 60 days or they consider the property “non-owner occupied” – if you aren’t careful, you could walk into an expensive mistake here!)
  • Who will pay for things like gardening, utilities, pool maintenance, and HOA fees, if any
  • Who will hold the deposit (the buyer or the escrow company?)
  • Under what circumstances the new owner can enter the property

When the market is super over-heated like it is today, we tend to see nominal security deposits and free, no-cost rent backs. Usually the tenant (seller) takes care of utilities, garden, pool maintenance. (more…)

What happens during a seller rent back?

When a home seller remains in the home after the close of escrow, it’s as a tenant or renter – even for a brief period of a few days.  With the shifting role from home owner to new renter, the rules of engagement may not be clear, and expectations may not line up with the addendum for the rent back.   So let’s do a set of what happens during the tenancy period after the sale is done.

Seller rent back True or False questions – which of these statements is true or false for the period when the seller is a tenant?

  1. When escrow closes, the buyers get keys to the home
  2. The seller must be undisturbed by the buyer until moving out
  3. The buyer can do repairs, including fumigation, during the rent back
  4. Prospective tenants may view the property during the rent back
  5. Contractors may enter the property during the rent back
  6. The new owners must give 72 hours notice before entry
  7. To enter the home, new owners must use an official CAR or PRDS “Notice of Entry” form
  8. The new owners may only enter the property if their Realtor is present or if the listing agent is present
  9. If the seller overstays the agreed upon rent back time, there’s a penalty fee that will be charged
  10. If there’s a rent back, buyers may do a walk through both before close of escrow and also at the end of the rent back period.

 

What does the paperwork saySome of these are challenging not just for buyers and sellers, but for real estate agents too. The reason for the confusion has to do with the number of forms involved.  There are 3 different rent back addenda which may be employed in Silicon Valley: 2 options from the California Association of Realtors (CAR) and 1 from the Peninsula Regional Data Service (PRDS).

  • PRDS form RSOAS – Seller Occupancy After Sale Addendum (1 page form)
  • CAR form SIP – Seller in Possession Addendum (1 page form, intended for less than 30 days)
  • CAR form RLAS – Residential Lease After Sale (5 page form, for more than 30 days rental to seller)

Some Realtors only use either CAR or PRDS forms, but I have found that depending on whom you represent, it may be worthwhile to tell the client about the differences between them as they are not exactly the same for all of these questions.

Now let’s go back to our questions and see what the contract & addenda have to say about each one. (more…)

Rent back: what is it, who wants it, what are the issues to consider?

With our severe seller’s market in Silicon Valley, many properties are selling with multiple offers, over bids and highly competitive terms.  One of them which is frequently sough by sellers is an option for a “rent back”.

What is a rent back?

PRDS Rent Back FormA rent back refers to the seller staying in possession of the home after it’s been sold to the new owner. Sometimes it is free, other times there is a cost, but often (either way), a security deposit is held in escrow.

Why do some sellers want to stay in the property after close of escrow?

If the sellers have sold their house, townhouse or condo, why do they want to continue living there?  In most cases, the sellers request the ability to stay on a little longer for any number of reasons.  Perhaps they need to find a replacement property, they are building a home which is not yet completed, they want a child to finish out a term at a neighborhood school, or some other deadline or goal has not yet been met.  If they don’t have the ability to lease for that period of time, they will have to move twice – something no one enjoys. (more…)