What Is a Rent-Back Agreement?

For many homebuyers and sellers in Chicago, one of the hardest parts of closing a great deal is getting the timing right. It can be hard to coordinate schedules, line up movers, and establish deadlines, particularly if one or both parties is attempting to buy and sell a home at the same time.

In our experience, there’s one little real estate trick that can really help sellers caught up in a double transaction. It’s known as a rent-back agreement, and it offers flexibility and leverage to both buyers and sellers – if it’s done right.

What Is a Rent-Back Agreement?

Put simply, a rent-back agreement is a legally-binding agreement between buyer and seller that allows the seller to remain on the property, as a renter, for a set amount of time after closing.

There are a number of things for buyers and sellers – and their real estate attorneys – to consider when it comes to a rent-back agreement. Namely, all parties will have to negotiate and agree on terms including:

  • The rental period (typically 60 to 90 days)
  • The cost of rent (typically based on market conditions in your neighborhood)
  • Whether or not the buyer – now the landlord - will request a refundable security deposit

Once the terms of the rental are agreed upon and communicated, the parties enter closing and the buyer officially takes possession of the house.

Most commonly, the buyer will be responsible for typical upfront fees and closing costs and the seller will pay for any upfront rent charges or security deposits, unless the parties reach some other understanding during the agreement. For example, the seller may offer to pay some or all of the buyer’s closing costs in exchange for waiving rent.

What Do Sellers Need to Know About Rent-Back Agreements?

For sellers, being able to stay in the home for an extended period offers a lot more flexibility to move out at their own pace. And if the sellers are looking for or are in the process of closing on a new property themselves, being able to live in a secure rental spares them from a month of couch-surfing or hotel-hopping.

What sellers do need to remember is that they become renters after closing, meaning that they’re going to be held to the same standards as any other tenant – including making payments on time and avoiding any damages that may compromise their security deposit, if they agree to one. 

What Do Buyers Need to Know About Rent-Back Agreements?

A rent-back offers the buyer additional flexibility, as well. Often, the rent back agreement is the key component that gets an otherwise untenable timeline to work for the seller. So the first benefit is simply getting the deal done.  Additionally, the buyers don’t need to rush to fill the home a day or two after closing, and can instead take a breath and think strategically about moving, decorating, coordinating schedules, and so on. What’s more, any rent payments made by the seller could go a long way toward covering closing costs or moving expenses.

Before the sale, attaching a rent-back agreement to an offer can help a buyer stand out. Offering the freedom of a rent-back upfront is a great way to ensure that an offer has a competitive edge.

Things to keep in mind as a buyer entering a rent-back? You will become a landlord, meaning that you’re most likely on the hook for paying for any unforeseen damages or repairs, and making sure that your tenants leave on time. 

Looking to Talk All Things Chicago Real Estate? 

With all things considered, a rent-back has plenty of benefits for buyer and seller alike! Want to talk about other ways to give your offer an edge? Looking for a painless way to sell your home? Drop Real Group a line to keep the conversation going! 

From market conditions, to staging, to negotiations, our team knows all of the tricks to buying and selling on the Chicago market. Why not check out our listings or follow us on Facebook for all the latest?

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