The Seller’s Leaseback

The More You Know

A not at all uncommon transaction in real estate is the seller’s leaseback (or sometimes called just a leaseback). It takes place when, after the closing of the sale of their home, the sellers continue to occupy the property for a set period of time, for agreed upon consideration.

Frequently it is used because the sellers need the funds from the sale of their current home in order to close on their new home, or their new home isn’t quite ready for them to move in.  Sometimes it’s possible for the escrow company to coordinate both closings the same day, but usually there is at least somewhat of a lag.  So when the timing doesn’t quite work out a leaseback can be a great option that can save the sellers from having to move their things twice — provided the buyers (who have just become the new owners) are willing, and have some flexibility on when they need to take possession of their new home, of course.

In the state of Texas leasebacks can be easily handled by use of the Seller’s Temporary Residential Lease form, as long as they are under 90 days in duration.  Before closing, the parties will reach an agreement on how long the leaseback is needed, the daily rental amount, utility costs and deposit amount required.

The rental fee is entirely up to the new owner’s discretion, though I usually recommend a simple formula to my clients who are looking for direction on this: divide the buyers/new owner’s mortgage payment by 30 days to get a daily rental fee.  And note, there does not have to be any fee charged at all; sometimes it can be an enticing part of the original offer (when it is known upfront that the sellers will require a leaseback after closing) to let them know they can do it at no charge.

The deposit is also discretionary.  While it’s not an absolute necessity, it’s usually good insurance to have just in case, especially if any enmity developed between the parties during the transaction (for instance, now that they are tenants rather than the home’s owners, it’s not inconceivable that less care might be taken not to damage the walls, say, when moving their things out).  Or even in a perfectly amicable transaction, things can still get damaged or left dirty, especially if there are pets or children in the house — moving is rough!  So I think it’s a good idea to ask for, generally. Make it an amount you’re comfortable with to cover potential damage, but isn’t unreasonable.

The leaseback will be handled at closing, either with the funds coming directly out of the seller’s proceeds, or in the form of a check from the sellers to the buyers.  As newly minted landlords, the buyers should get a set of keys, with the sellers (now tenants) also retaining a set until their move out date.  Return of deposits or a refund for a shorter than anticipated stay should be handled directly between the two parties within 30 days after the sellers have vacated the home.

So, there you have it: the seller’s leaseback, in a nutshell.

Knowledge bomb, dropped. 🙂



Author: tanyajoffrainrealtor

I'm a licensed Realtor in the state of Texas, working in the Austin Metropolitan area.

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