Providing creative solutions to buyers and sellers, such as leasebacks, is a tangible way to add value and create opportunities, according to team leader Julie Busby. Sellers on the fence about selling are much more willing to try if they understand all available avenues.

Teams are growing, changing and evolving rapidly, as new agent ranks swell, prices rise and uncertainty is ever-present. May is Teams Month here at Inman. Come along with us as we delve into teams today. Follow along with our weekly email newsletter Teams Beat to stay in the loop all year, sent every Thursday, sign up now.

It is safe to say that the key defining attribute of the 2022 spring real estate market is low inventory. According to the National Association of Realtors (NAR), inventory levels are at 1.7 months for March 2022 — down even lower from the month prior. And while low inventory is the key factor to creating the strong seller’s market that our current sellers love, it can be a double-edged sword for sellers too: Where do they move after cashing in? 

A seller leaseback is a handy tool that provides sellers with time to shop around and the funds to buy their next property without using a home sale contingency — which in our current state of low inventory would most likely never be accepted. 

How does a seller leaseback work? 

A seller leaseback means that after closing, the seller of the property remains in the property for a designated period of time. During that time, the seller becomes the “tenant,” and the buyer becomes the “landlord.”

The time period varies greatly, anywhere from one day to six months. On my team alone, about 50 percent of our transactions thus far in 2022 have included a lease back.

Timing is important

An important term to hash out upfront is notice periods. Sometimes a seller commits to vacating the home by a specific date, but for others, flexibility is most important, so it is wise to consider a short notice period for the seller vacating since most markets are moving so quickly — approximately two weeks.

This way, sellers can act fast on an opportunity, and buyers can move into their new home following the notice period. 

Conversely, the length of leasebacks is longer than usual right now, averaging around six months. This more extended period of time gives sellers time to find a home in the competitive marketplace. 

Two caveats

The first caveat to note is that seller leasebacks will typically only work during a strong seller’s market.

For example, in Chicago, where we work, I anticipate that come fall 2022, this trend will most likely diminish because demand will decrease. 

Also, if a buyer is financing their purchase, lenders typically like to see leasebacks under 60 days. 

How is rent handled?

Rent is usually based on the buyer’s daily rate: 

Monthly mortgage payment + insurance + taxes / All divided by 30

Why seller leasebacks are appealing

Sellers like using leasebacks because it provides the security of time and funds when looking for a new property and allows them to sell during peak market times when they can achieve a higher sales price.

Buyers are usually willing to work with a lease back because of low inventory and also a desire to lock in rates before they increase. The peace of mind of finding a home wins out.

States that use attorneys during the transaction period will create a “Post-close Possession Agreement” during attorney review that outlines all the particulars and provisions, such as who makes repairs if something breaks during the leaseback period.

For states that operate without attorneys, brokers typically use standard riders/addendums outlining the agreement. 

Providing creative solutions to buyers and sellers, such as leasebacks, is a tangible way to provide value to clients and create opportunities. Sellers on the fence about selling are much more willing to try if they understand all available avenues.

Julie Busby is the founder and president of Busby Group, and in the top 1 percent of Chicagoland brokers. Follow her on Facebook and LinkedIn.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Inman Connect Las Vegas Memorial Day sale – 44% off exclusively for Select subscribers!Register Now To Save×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription