Rising Negotiation Point In Heated Market? Leasebacks

More sellers want to stay in their home after closing, sometimes for weeks or months, and agreeing to their request gives some buyers an edge over the competition.

SARASOTA, Fla. – It might once have been a given that a buyer would move in shortly after their house closing.

But nowadays, in what at least one Realtor® says is the best seller’s market of her entire career, sellers have an additional demand: They want to stay in their house days or months past closing. In many cases, they want to do it for a fraction of the fair market rent or even for free.

It’s a process called a leaseback: the house now belongs to the buyer but the seller leases it back from them for a period of time. While this agreement is more traditional for custom home builders, who often sell their models and lease them back from buyers for at least six to nine months, leasebacks are becoming increasingly common among private individuals selling their homes to others.

A ‘significant uptick’ in the number of leaseback agreements

Sarasota real estate attorney Natasha Selvaraj, who works at firm Berlin Patten Ebling, has noticed a “significant uptick” in the number of leaseback agreements she’s put together in the last few years.

“We used to probably see them few and far between,” she said. “People would just adjust their closing date so that they would close when they were ready. But with the way the market is now, it’s definitely a lot more buyers who want to accommodate the seller.”

Selvaraj tends to see leases that go for a short period of time, from between 30 to 90 days, ideally giving the seller a chance to find another place to live. Sometimes they’re awaiting the completion of a new construction or a move-in date to a retirement home, but they want to take advantage of the current market. Sometimes it’s just sentimental – it’s October, but they want one last Christmas in their home.

Are there any leaseback issues?

A leaseback isn’t inherently problematic. But there are certain issues that need to be addressed before – not after – a seller is living in their former house as a tenant.

“I find that people just assume it’s something that magically happens – what can go wrong?” Selvaraj said.

The short answer is plenty. How long will the seller stay? How much will they pay or will they pay at all? Who is responsible for utilities? If they want to extend the lease, is that possible?

These are questions prospective buyers may have to answer more and more, because leasebacks can be an important way to sweeten the deal for sellers choosing between multiple offers.

The problem with leasebacks is that they’re not always advertised, says Pam Charron, an associate broker for Compass. Often, it’s something a buyer’s Realtor has to unearth from the listing agent.

“A lot of it is being creative as a Realtor on the buyer’s side,” Charron said. “Many times, the listing agent says, ‘The sellers would like to stay here and have time to pack or move or find a place.’ Whatever those reasons are, it has substantially increased.”

Charron has even seen a leaseback be the winning factor between a higher offer and a lower one that offered the seller the chance to stay in their home after closing. She represented a prospective buyer for a high-end multimillion-dollar property with multiple offers. When the listing agent told her that the seller wanted to remain in the home for “several months” free of charge, she took it to her buyers. They weren’t comfortable with those terms and the house went to someone else. When the property did close, Charron saw it went for lower than her buyers’ offer.

Sarasota Realtor Judy Limekiller of Coldwell Banker Realty puts it more succinctly: In this market, sellers get what they want.

“It’s whatever makes the seller really, really happy,” she said. “They’re like, ‘We want this,’ and they get it. It’s just that strong of a seller’s market.”

Roger Gibboni is one of those sellers. More than two years ago, he and his wife purchased a three-bedroom, two-bathroom condo in Vamo’s Pelican Cove for $280,000, according to Sarasota County property records. They live most of the year in the Berkshires in Massachusetts, but they wanted to try their hand at the Florida lifestyle.

While they loved it, they shortly after realized they wanted something a little different – a condo on the water. So when such a condo came on the market, they jumped on it almost sight unseen, Gibboni said. Records show they purchased the three-bedroom, two-bathroom condo for $466,000 in October 2021. It was in dire need of renovation.

They weren’t intending to sell their current condo until the waterfront unit was ready for them to move in. But as the instability of the market bore out, Gibboni started to get nervous. He wondered if it was better to sell now and lease their current condo until the waterfront place was ready.

It turned out to be the right choice. The condo was barely on the market before the couple got an offer they almost couldn’t turn down.

“This was a savvy buyer – they knew what they needed to do to get the place,” Gibboni said. “They came in with a leaseback, above the asking price and no contingencies.”

The condo recently sold for $475,000, according to Gibboni. But the couple will be living there until the end of August – at no cost.

When it comes to leasebacks, Selvaraj has an important piece of advice: Anything over 24 hours requires something in writing.

“I’ve had people who say, ‘They seem like really nice people,’ and I’ll say, ‘Okay, then you just have strangers in your house,’” Selvaraj said. “You don’t need legal documents until you need legal documents, and usually by then, it’s too late to get one signed.”

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