Dear Monty: Why on-lending agreements work for buyers and sellers | Siouxland Houses
Margarita M. Phillips
3 min read
Dear Monty: We just lost a house because sellers needed time to move out after closing for up to 30 days. We even offered to adjust the closing date, but they were adamant. This practice is suspicious. Do I sell you my washing machine but can I use it for a month? Not having access to the property I own is not correct. Also, will they take care of the house when they don’t own it? There was another offer of a few thousand more than list price with an eventuality of financing. We had a cash offer at the listing price. Is relocation after closure a common practice?
Monty’s response: The practice of an after-close annuity is common in real estate in the United States. There is no comparison with selling a washing machine and a house. It also appears that the reason you lost the house may have been “a few thousand dollars” rather than the possibility of rent. They may also have preferred the cash offer, but the lack of an agreement on the rent was enough to push them to outbid.
Why do home sellers prefer to rent?
Many real estate agents recommend delivering the property to the buyer at closing. While this is not a problem if the home is vacant, delivery at closing exposes the seller to financial risk in most other circumstances. Here is a link to a sad story on the DearMonty site. https://dearmonty.com/rent-back-clause-prevents-financial-disaster/. Here are the reasons why sellers should re-let:
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– If the transaction does not succeed, the seller has made numerous irrecoverable financial commitments. Depending on your source, the fall rates in the United States vary from 10 to 20%.
– The annuity relieves the emotional tension that otherwise builds up as the closing approaches.
– There are now several arrangements which require additional time to be settled. The downside comes with frustration.
– Rent-back eliminates these risks.
Why Home Buyers Accept Rent-Back
When the buyer and seller agree on the terms of the sale and the seller charges rent, most homebuyers (over 50% are from a home they recently sold) are OK. They accept the retrocession request as a reasonable requirement. Here are the reasons homebuyers agree:
– The document clearly describes all the obligations of the seller during their occupation. Items such as physical damage, moving date, utility payments, daily occupancy fees, departure conditions are broom cleaning, lawn and yard maintenance and any other obligations .
– Escrow of the seller’s product guarantees delivery to the buyer on or before a specific date. The seller must comply with all clauses of the rental agreement. These agreements generally include a deduction from the rent.
– It is a condition of the seller in the sale.
When should house sellers use the rent
Here are the circumstances that make annuity contingency a practical tool:
– The buyer’s offer has “all” contingencies.
– If the buyer defaults, make sure the deposit is large enough to cover your potential financial losses (does your broker share the defaulted deposit?).
– The seller has no house ready to occupy at closing.
Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home”. He advocates for industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com
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