Imagine a scenario: You’re selling a home where you’re residing. Chances are, you’ll need some extra time to live in your old home even after closing. That’s the time, a rent-back agreement can come to your rescue. It will let you become the new homebuyer’s temporary tenant for a short period of time and for certain terms and conditions. 

Now, imagine another scenario: You’re buying a home but have some time before moving in, and the seller wants to continue living there for a short time. The new homebuyer can then sign a rent-back agreement with the previous homeowner whereby the latter becomes a tenant of the former. And, the homebuyer gets a good rental rate. 

The fact is, the timing of all real estate transactions may not always go according to a plan. You may find a suitable buyer for the house you want to sell before you’ve found your dream home to live in. 

A rent-back agreement can help bridge the gap in the timing. Most importantly, it helps the seller avoid the headache of having to move twice. This agreement is not just beneficial for the home seller but also for the homebuyer. Let’s find out how. We’ll talk about the agreement, how it works, and how both parties can benefit from it. 

What is a rent back agreement?

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When a buyer agrees to let the seller stay in their home for a set period of time even after closing, this is known as a rent-back agreement. This frequently occurs when the seller hasn’t found a new place to live and requires extra time before moving out of their previous residence.

A seller often uses a real estate attorney to help draft a rent-back agreement that will allow them to continue living in the home as the new buyer’s temporary tenants. 

How does a rent-back agreement work?

Home sellers and buyers need a formal agreement to spell out the terms and conditions of the seller’s occupancy. It helps to protect both parties. The agreement is a legally binding document made in writing between the buyer and the seller. Both decide on how long the seller can stay in the home after closing and how much rent the seller will pay. The buyer, to be on the safe side, may also charge the seller a refundable deposit to cover any damages that could occur while the seller is living there.

When both parties agree, the buyer will close on the house, at which point the buyer will officially take possession of the property and pay any upfront charges as with a regular closing. Furthermore, the seller will pay any security deposits or rent in advance and will stay in the residence.

How to go about a rent-back agreement?

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The following steps can be taken by a seller and buyer before signing a rent-back agreement.

  • Consult a real estate agent or attorney to navigate issues such as homeowner’s insurance, the rent-back period, principal interest, and the loan process. 
  • Notify the concerned loan lender and get the approval for the rent-back.
  • Sign the rent-back agreement. Make sure it documents details such as the seller’s rent rate, the length of time of the occupancy after the closing date, the security deposit amount, home maintenance responsibilities, utility payments, and additional insurance coverage or fees.

For rent-back agreements that last 30 days or less, you may use a seller in possession (SIP) form, with similar provisions, in lieu of a traditional rental agreement. 

Pros of a rent-back agreement

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Rent-back benefits include the following for both parties involved. 

For the Home Seller For the Homebuyer
Gets time to find a great houseMay get an attractive offer 
Can avoid moving many times or renting temporary housingMakes a homebuying deal easier to close
No need to rent a storage unit for furniture etc.Gets a rental income at the current market rate
Less stressfulMay offset some of the mortgage payments, closing costs, appraisal fees, and attorney fees.

Cons of a rent-back agreement

A rent-back agreement can have some potential drawbacks and risks for both the buyer and seller of a house or an investment property. 

For the Home Seller For the Homebuyer
A potentially higher monthly rental paymentAdded landlord responsibilities such as collecting rent and security deposit, drafting a lease agreement
Inability to make permanent changes in the houseDelayed move-in schedules; could be days after closing on the house
Risk of losing the security deposit in case of a damageEvicting the seller (now the tenant) can become complicated

Last thoughts

A rent-back agreement benefits both the buyer and the seller. It allows the seller to pay rent to the new homeowner in order to stay in their sold property while they search for their dream home. 

The homebuyer gets a good rental income based on the current market rate and gets to buy a home that they desire. Having said that, whether you’re a buyer or a seller, you should enter such an agreement clause only after considering your personal and financial situation.

What is a rent-back agreement? Find the pros and cons here! was last modified: January 31st, 2023 by Ramona Sinha
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This sounds like chances for a deal to blow, I prefer to sell fast without second thoughts