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Spiro J. Verras Blog

Thursday, June 16, 2016

Buying a Home and Then Leasing It Back to Its Former Owner

Why would you buy a home and then lease it back to its previous owner?

There are several reasons that buyers purchase a house and then lease it back to the seller for some period of time. Typically, it is a favor to the seller who requires more time in the home after the sale. This can happen for any number of reasons, including:

  • A new home has not yet been purchased
  • A new home is under construction
  • A major family event, such as a wedding, is going to take place
  • A family member has become ill or injured or is near death
  • Employment locally requires the seller to stay in town longer than planned
  • The move will be more complicated than expected

When the buyer is flexible about allowing the seller lease the house back for a few months, it often works to the buyer's financial advantage.

A Case in Point

A woman in Seattle relates that she made an excellent purchase during a very strong seller's market. Though she did not make the highest bid on the property -- in fact, many offers were considerably higher than hers-- she was able to offer the seller the advantage of flexibility by allowing him to remain in the house for several months after the closing. This flexibility made her offer the most attractive one to the seller, who wanted to remain in their home until the construction of his new house was completed.

By Any Other Name

There are many appellations for the type of arrangement being described. In the Southeast or Northwest, it is typically referred to as a Sale-leaseback, whereas in the Northeast it is more commonly called a Post-closing possession agreement. Whatever name is used, it doesn't work for everyone since most buyers have to move by a certain date because of employment, school, or other obligations. Frequently, a leaseback can work for first-time homebuyers who can simply remain in their rental for a longer period. It is also a good possibility for investors who are purchasing the home to rent out anyway, or for those who may be purchasing in order to repair or improve the property and flip it.

Why You Require a Knowledgeable Real Estate Attorney

Although in some cases a leaseback may seem an optimal solution, there are potential problems. For one thing, the property may change or deteriorate during the period that the seller remains in the house. For another, the delay in moving out of the house may become prolonged. If the seller is waiting for the construction of a new home, for example, construction delays may extend the leaseback period.

It is essential for anyone making a real estate purchase to engage the services of a competent attorney with real estate experience. This is a particularly pressing need for individuals who are making a leaseback agreement and need to ensure that the parameters of the agreement are carefully drawn.

Common Arrangements in a Leaseback

Typically the rent in a leaseback agreement covers the carrying costs for the new homeowner. It is customary to penalize sellers who stay beyond the agreed upon date by charging them as much 150 percent of the daily rate for each extra day. This penalty is, of course, designed to get the seller to move out promptly.

The importance of having excellent legal representation during a leaseback cannot be overstated. Real estate deals are complicated to begin with; when there is a leaseback involved, the situation becomes even more complex. If you are purchasing property in Florida, having an attorney who understands the intricacies involved will provide you with peace of mind as well as the best possible outcome.


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