Home sellers using rent-back as safety net

Avoid moving twice by staying in your old home while shopping for a new one

Some sellers who own one home and want to move to another have been having a difficult time making the move in the current housing market. Most sellers can’t afford to buy a new home first, move in and then sell the old house.

Financial constraints usually force sellers into a position where they need to sell first, unless they are buying in a soft market where sellers are open to accepting offers made contingent on the sale of another property.

For sellers who need to sell first, the nagging question is: Where do I move when this house sells? If you can buy contingent on the sale of your current home or contingent on the close of that sale if you already have a buyer for your home, you can move directly from your current home to the new one.

One family was able to make a seamless move from one house to the next because they were buying in a market where there were plenty of homes for sale. Once all contingencies were removed from the contract to sell their home, they were able to buy a new home contingent on the close of the old one and avoid a double move.

Not all sellers are so lucky. There are many low-inventory markets around the country. It’s usually easier to sell in a low-inventory market, but it can be difficult finding a replacement home to buy. Finding an interim rental is sometimes the only option.

The advantage of renting temporarily while you look for a new home is that you don’t need to feel rushed to buy a home that may not suit your needs. Given the uncertainty in the market, you should buy only for the long run. It could take time to find the right place.

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A disadvantage of renting before buying is that you might have to pay to store some of your furniture while you rent, and you’ll have to move twice.

HOUSE HUNTING TIP: Negotiating an option to rent back your current home after closing may help you avoid a double move, or at least give you time to find a suitable rental. Rentals are also scarce in some areas, so it may not be easy to line up temporary quarters on short notice.

A rent-back agreement allows you to rent your home back from the buyers for a certain period of time. Be aware that many lenders won’t allow the sellers to rent back for more than 30 days after closing.

The cost of a rent-back varies. If there are buyers vying for your home, you may be offered free rent for a period of time. However, typically, the rent-back cost is equal to the buyers’ principal, interest, taxes and insurance prorated on a per diem basis.

This may cost more or less than you currently pay to own your home. Keep in mind that you do this for convenience, not because it’s the best deal on a rental.

Sellers who think they might want to rent back after closing but don’t have their next home lined up at the time they accept an offer should include a clause in the contract that gives them the option to rent back for a certain time.

Recently, a seller insisted that she didn’t need a rent-back option, confident that finding a rental would not be a problem. As it turned out, it was a problem. She asked the buyers if she could move out later than the contract date. The buyers couldn’t change their moving plans, so the seller had to move out on time.

THE CLOSING: If you don’t use the rent-back or part of it, make sure you don’t have to pay for it.

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide."

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