This post is part of a series called “Tough Questions: Real Answers,” where I will be answering your burning questions about buying or a selling a home in Colorado, or real estate in general. To submit your question, email me at [email protected]
One of the biggest concerns I hear from people considering selling their home is the fear that they won’t be able find a new place to live before closing. This is a certainly an understandable worry. Nobody wants to be homeless and you can only crash in your sister’s spare bedroom for so long. Plus, there is the added expense of putting your belongings in storage.
Lucky for you, there is a provision that can be added to your contract that will allow you to “rent back” your home from your buyer. Learn all the details about the rent-back agreement below.
What is a rent-back agreement?
This is properly called a Post-Closing Occupancy Agreement (PCOA). Basically, the PCOA allows you, the seller, to “rent-back” the home after closing for extra time to find your next home. You’ll basically become the new buyer’s temporary tenants. Your rent-back agreement is in writing and legally binding.
The two main points that will need to be agreed upon in the rent-back agreement is how long the seller will stay in the home and how much the buyer will charge in rent. The buyer may also choose to charge a refundable deposit to protect themselves against any damage.
At closing, the buyer will officially take possession and pay any upfront costs. The seller will pay any security deposits or upfront rent and remain in the house as a temporary tenant.
What to consider in your rent-back agreement
If you are considering a rent-back agreement as a provision of selling your home, there are a couple of things to think about. First, most rent-back agreements don’t extend past 30-60 days. This means that while you may have bought yourself a little extra time to find your new home, you still need to hustle.
It’s also important to realize that after closing, your house is no longer yours, whether you’re staying there or not. You’ll have to be respectful of the space just like you would any other rental property or risk losing a security deposit.
What if I’m the buyer?
As the buyer, there are benefits for you in offering a rent-back agreement as well. In the Denver metro area’s competitive housing market, an offer with added flexibility on move-out dates just might give your offer an added edge. Plus, the rent that a seller would pay could help you to recover some of your closing costs.
Just keep in mind that now that you officially own the house, you’re also responsible for any repairs and upkeep. So, if that water heater goes out after closing, you’ll be responsible for replacing it, whether you’ve moved in yet or not.
And, of course, there’s always the rare possibility that the sellers won’t move out on time. This doesn’t typically happen, but it is something to keep in the back of your mind. In this instance, you’d have to go through the eviction process like any other landlord.