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Lease back Agreements: Useful or Stressful?

Mary did not know what to do. She panicked when her home sold and her new home was still under construction. Luckily, the buyer of her home was open to a lease back agreement and Mary was able to have comfort in knowing she did not have to live in a hotel the next couple of months. Like Mary, many of today’s sellers are worried that they will have no place to go once their home sells. If you are planning to buy a new home while selling your current home, you may want to be aware of what a lease back agreement is. A lease back agreement gives sellers extra time to live in their home after closing by essentially becoming the new buyer’s temporary tenants. 

Although lease back agreements typically involve time limits, it gives sellers more time to close on their new home. Although this may seem to only benefit sellers, buyers can also experience some big bonuses through a lease back agreement. For example, in a competitive market, submitting an offer that is flexible on move-out dates can gain a competitive edge and the rent that the seller is paying the buyer can help buyers recover from financial strains caused by closing costs. If a lease back agreement is done correctly, it can benefit everyone. However, knowledge is key! Michele Harmon Team has listed a few things you may want to consider before going all in on a lease back agreement.

How exactly does a lease back agreement work?

A lease back agreement is a legally binding agreement made in writing between a home buyer and seller. In Texas, a lease back can take place for up to 90 days and both parties will need to agree on how much rent the seller will pay to be there. To keep things safe, the buyer may also require the seller to pay a refundable deposit to cover any damages that may occur while the seller is still living there. 

Once everyone is in agreement, the buyer will close on the house as normal and the seller will pay any security deposits or upfront rent.

Agreeing to a lease back as a seller

It is always a good idea to consider the circumstances of your situation before deciding if a lease back agreement is right for you. As a seller, renting your sold home can provide you with multiple benefits, though there are downfalls as well. 

The potential benefits for sellers entering a lease back agreement include:

  • More time to find and close on your dream home
  • Not having to move more than once
  • You can present an attractive offer on your dream home with a short closing timeline

The potential risks for sellers entering a lease back agreement include:

  • Monthly rental payment may cost more than your monthly mortgage payment
  • Inability to make permanent changes to the property during lease back period
  • Potential loss of security deposit due to property damages

Agreeing to a lease back as a buyer

Although agreeing to a lease back may help you financially recover from closing costs, it is important to consider all of the potential benefits and risks prior to signing an agreement.

The potential lease back benefits for buyers include:

  • Presenting sellers with a more attractive offer: If the seller needs somewhere to live for a month or so, and a buyer can offer to let them remain in the home through a lease back agreement to help tip the scale in their direction when it comes to the seller selecting an offer.
  • Additional income: The rental income you receive can help offset your mortgage payments, some closing costs, appraisal fees, and attorney fees.

The potential lease back risks for buyers include:

  • Being subject to landlord responsibilities such as collecting rent, collecting a security deposit, and eviction if necessary.
  • Delayed move-in
  • Potentially having to evict tenants 

In conclusion, a lease back agreement could benefit both parties in a home sale, but it is important to consider both your personal and financial situation before signing a lease back agreement. Michele Harmon Team is here to help you with all of your Real Estate needs and we will always keep your best interests in mind. Give us a call at 713-818-1330 for questions or more information about how we can help you buy or sell your home. Your home is our business and we would love the opportunity to work with you!

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