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The Power of the Seller’s Temporary Lease

If a Seller must sell prior to buying their new home, the idea of selling and not having a home secured to move into can bring a lot of anxiety. Have no fear, we have solutions for that! We’ve never once had a “homeless” seller.

The “Leaseback”

A Seller’s Temporary Lease, also commonly referred to as a “leaseback”, is fairly common in Austin’s real estate market and can be beneficial for both the buyer and the seller.

Purpose of the Leaseback

A leaseback buys the seller time to stay in the home even after the home closes and funds. This can be helpful for various reasons including: Having extra time to move out; having the time to find a new place to call home; and not having to move twice. The reasons that fall into the aforementioned categories are many.

A leaseback is especially helpful for sellers If a seller is unable to qualify for a new home loan while they still own their current home. Negotiating a leaseback in the sales contract allows the seller to close on their current home, receive their proceeds (and remove their debt), in order to qualify for their next home purchase. In this scenario, they are still in their home, they have their downpayment in hand, are a non-contingent buyer, and can start competing with the rest of the buyers out there.

At first glance, the seller leaseback seems to be a benefit solely for the seller…not so! Buyer’s are very often purchasing while they are still in a lease so they have quite a bit of flexibility with respect to their move-in date. If the buyer is able to negotiate a per diem rental amount, even better to help offset the costs of covering two payments.

How it Works: The Basics

Your REALTORĀ® will add a Seller’s Residential Temporary Lease to the contract, a per diem rental amount is agreed upon, and the length of the leaseback is agreed upon along with a deposit and holdover amount, if any. The length of the leaseback can be anywhere from 1 day to 90 days, however, some lenders will only allow for a maximum of a 60 day leaseback if the purchaser is an owner-occupant as opposed to an investor.

Things to Consider: Insurance

A leaseback does not come without some risk, however, as with all things, it’s all about weighing the risks and rewards. A seller will want to obtain a renter’s insurance policy and the buyer will want to be sure their insurance company understands that there is a leaseback in place so they can set up the insurance accordingly. There is absolutely nothing worse than either party not having the proper coverage. Things can happen, and sometimes, they do. Feel free to call us anytime to hear some of the situations we’ve encountered, and how they’ve been resolved.