Should you rent back your new home to the seller?

During property transactions, sometimes the seller hasn’t found anywhere else to live by the time they sign on the dotted line.

One of the most common solutions to this situation is renting back the property to them for a period of time, but is it a good idea?

Property Pursuit director and buyers’ agent Meighan Hetherington said the “rent-back” option was more likely in an off-market sale that happened sooner than the seller had anticipated.

Renting back the property to the seller also gave the buyer a stronger negotiating position, she said.

“That’s a really strong position to be in from a negotiation point of view because we can meet the seller’s needs without offering more money,” she said.

“The seller can either have a long settlement with the comfort that they have got the sale or they can have a normal 30-day settlement and they can be cash buyer to jump on any opportunity if something comes up but not have to move before they’re ready.”

Deciding whether to offer a long settlement or a rent-back depended on each party’s circumstances, but one usually put the buyer in a stronger position than the other, she said.

“You can often negotiate a better price by offering a normal settlement with a rent-back than you can in offering a long settlement,” Ms Hetherington said.

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Long-standing Toowong sales agent and principal Doug Disher said rent backs were often mutually beneficial to both the seller and the buyer, such as when the property had been bought for future re-development purposes but the original owner had not found a replacement home.

But he said it was imperative that a formal lease was drawn up if renting back the property to the seller, to ensure the terms and conditions were clear.

“The most important thing in any arrangement is to ensure the terms are legal, clear and precise,” he said.

“It’s essential that both parties understand their obligations under any such arrangement. It is always best to get legal advice before entering into any agreement involving rent-back situations.”

Ms Hetherington said one of the risks with renting back a property was that many sellers had not rented for a long time and often misunderstand their rights and responsibilities as well as those of the landlord and property manager.

It was important for the tenancy agreement to be explained in detail to the seller to prevent any potential issues during the tenancy, she said. Likewise, an entry condition report was imperative.

“The entry condition report is the only piece of evidence that the new owner has to say what state that property should be left in by the tenant when they vacate,” she said.