An annuity contract allows a seller to buy extra time


Picture this: Your builder is about to complete your custom home, and you’ve just found a buyer for your current home. But as the closing date approaches, your contractor experiences a significant delay that will prevent you from entering your new home for another month.

What can you do?

You call your agent and she offers you rent (also known as a post-settlement occupancy agreement) to buy you some extra time.

A rent-back allows sellers to stay in their home until a specified date after closing. After settlement, the sellers pay rent to the buyer who now owns the house. The sellers are now tenants, with a deposit involved in the event of damage.

“I learned to use rent-backs in a way that I found very useful for people,” said Sharon Jarrott, associate broker and partner at Washington-based Central Properties.

“People do what they can to plan ahead, but when you get an offer with a proposed settlement date, people ask, ‘How do I coordinate get out of here and move my money out of here. one property to another without having to move men down the aisle? “She said.” It can become a logistical nightmare.

Andrea McDaniel was selling her condo in Annandale, Virginia when she received a very attractive cash offer with a very short lead time to closing. Although she had expected more time to find a new home, the offer was too good to decline.

“When you have a cash offer on hand, you never want to turn it down,” she said. His agent offered a rent. The buyer, an investor who was considering renting the condo anyway, accepted without hesitation.

“The sale-leaseback agreement allowed me to stay in my house and gave me the peace of mind to find housing,” McDaniel said. “It allayed my concerns and I didn’t have to make a hasty decision.”

While it might make the seller uncomfortable to suddenly be a tenant, sometimes it is a necessary step in achieving a goal, such as moving into a dream home as opposed to one available on the closing date.

“Rents, if used correctly with the proper language inserted into the rider to the contract, help people put things together” to close business, Jarrott said.

What the contract says

The annuity contract – or “Seller’s Post-Settlement Occupancy Agreement” – on is a one-page form that lists information such as the rent amount, security deposit, moving date, and the seller’s responsibility to maintain the home. As for insurance, she leaves that to the seller and the buyer, saying only that they “are advised to consult an insurance agent about the coverage”.

McDaniel was advised to obtain insurance for the tenants. “I canceled my home insurance policy the day we went to the settlement,” she said. The price of home insurance compared to her tenant insurance was “fairly comparable”, she added.

When it comes to the amount of rent, buyers typically charge the local market rate or the actual amount they will pay to live in the property, including the mortgage principal, interest, taxes, and insurance.

After selling her condo in December, McDaniel rented it out to the buyer for about 40 days at a daily rate that she said was roughly equal to her mortgage payment plus condo fees. She paid all of the rent at closing, but was able to get some of it back by moving out before the 40 days were up.

“We have included a clause which, as long as I gave about a week’s notice [the buyer] would reimburse the difference, ”she said.

Buyers and sellers who can be flexible with their dates have an advantage over the inflexible parties.

“When it looked like it was four more days after the settlement [before the seller could move out] my client said it was fine, ”said Denise Greene, an agent for DCRE Residential, based in DC. “She wasn’t really in a hurry. If there is a huge extension of time, you will need to consider rent.

Whether it’s a formal retrocession agreement or a four-day grace period, “make it clear” in writing, Jarrott said.

“If everyone’s okay with a few extra days, just email it up,” Jarrott said. “I feel better when there is a piece of paper. If something should happen to me or happen to someone, there must be an email. It can be a two-sentence email – a record that everyone has agreed to certain conditions, such as no security deposit required and keys must be returned on a certain day.

Alert the lender

As a broker, Jarrott said this paper trail is crucial. “The broker has an obligation to comply with the law even when everyone agrees,” she said. And things happen from time to time; for example, a seller or a buyer could have a sudden medical crisis or even die. Without the proper papers, this could leave the transaction in limbo.

At the end of a period of annuity when the seller moves, the buyer can withhold part of the security deposit in the event of deterioration subsequent to the closing. Think: pets, kids, moving furniture. The seller must keep the house in the condition it was in at the time of payment.

The buyer, in turn, must be reasonable. The security deposit is not intended for the repair of items that have never been involved in the sales process, such as the replacement of old-fashioned but still functional lighting fixtures.

In terms of timing, rent-backs should be seen as a short-term solution. If the parties agree to a rent-back for more than a certain number of days, the lender can treat it as investment property and adjust the terms of the loan. Lenders charge higher interest rates for investment property loans than for primary residences.

Lenders are on the lookout for loan frauds in the form of investors buying a home at a principal’s rate and never living there. The buyer should carefully discuss the terms with a lender before entering into the deal.

Another consideration is the timing of the rent payment. Wrapping the rent in the fence and paying it in one payment can minimize stress for all parties.

While a rent-back requires attention to contractual details, Jarrott said that under the right conditions, she would advise buyers and sellers to consider it.

“Used judiciously, it can be a win-win for all parties if people keep it in mind from that perspective and spell out the details for the case to avoid misunderstandings,” she said.


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