Rent-backs popular in booming real estate market

Today’s real estate market is moving at a breakneck speed. In this world of multiple offers and competitive bidding, a home is only on the market an average of three months nationwide, down almost 7 percent from a year ago. In some hotter markets, such as the San Francisco Bay Area, the average time on market is less than 30 days.

This can be both a good and bad thing. Buyers and sellers who don’t want to miss out on the right deal are getting more creative when it comes to making real estate transactions happen quickly, even if it means adding on sometimes-dreaded contingencies. In an era of all-cash offers, most contingencies have gone the way of the dodo, but some, such as rent-backs, are still popular.

The Rent-Back

One way many sellers are dealing with the brisk pace of the real estate market is by adding rent-back contingencies into the selling contract. A rent-back is when the seller of the property gets the buyer to agree to rent the home back for a set amount of time.

This gives the seller the opportunity to take advantage of a hot market, while not causing too much disruption to their lives with a quick move. As you can imagine, 30 days – as is the case in some markets – is barely enough time to comprehend what just happened, let alone find a new home and move.

Renting the home you just sold for an additional month or two is a great way to reduce stress and help you make more informed decisions on your new home.

Rent-backs are also popular in real estate markets where investors are willing to do almost anything to buy up property. As a way of sweetening the pot, so to speak, investors make offers on homes that allow the current homeowner to continue to occupy the property for months or even years. And sometimes at a rental amount that’s below market value.

Other Popular Contingencies

Most of the time, it’s the buyer who places contingencies in the sale contract. These include anything from requiring the home pass a home inspection to assuring the buyer is able to secure financing. Here are the most common contingencies found in real estate agreements:

Insurance: Many buyers will demand an insurance contingency, meaning the home must be insured before they take possession. This is important because many insurance companies have become reluctant to issue policies in certain geographic locations, such as those prone to flooding or earthquakes.
Title: One of the most important contingencies for a buyer is the title contingency. This means the buyer can walk away from the deal if the seller is unable to prove ownership of the property in question. This helps cut down on scams and helps in the case that the land is encumbered with liens or easements.
Financing: Probably the most common contingency found in any real estate contract is the financing contingency. This states that the buyer agrees to purchase the home only if the mortgage company approves the loan.
Inspection: A third-party home inspection is the best way to ensure that the home is in good condition before you buy. Sometimes a seller or their real estate agent will commission a third-party home inspection in good faith to help speed to process along.

A loanDepot licensed loan officer can help with these and any other lending questions. Call (888) 983-3240 to speak with one today.

Published April 16, 2015

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