Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question. Beth from TX asks: Brian, I’m a first time seller and I should probably be asking a lot of other questions, but the two on my mind are 1. How much do I have to disclose to a buyer about my house? 2. Can I rent back my house from the buyer for a couple of months until I can move into another one of my own? Renting for a few months seems like the smart thing to do so that I don’t have to move twice and fork out more money for an apartment deposit.
Answer. Hi Beth. The short answer to how much you have to disclose is, all relevant facts about the house that are not easily seen. Ultimately, this is for your own benefit. Almost every house sale is contingent on a professional inspection. If your disclosure form doesn’t list something you should have known, when the inspector finds the obvious, the buyer will be concerned you tried to hide other issues. Instead of negotiating a solution, the buyer is likely to use the contingency to back out of the deal.
Seller Disclosure statements are required at both the federal and state levels. The federal level is straightforward. It wants to know if lead paint was used in any houses built before 1978. Houses built after 1978 aren’t allowed to contain lead paint. You are required to provide buyers with a federal pamphlet titled: Protect Your Family From Lead In Your Home. Your agent will have the pamphlet and can answer any questions you have.
Beth, as you probably expect, state disclosure regulations vary considerably. Not only do these vary, these also change relatively frequently in some states. Your agent should be fully up to speed with this to help you fill out the required forms. At a minimum, you’ll probably have to disclose water or mold damage, hazardous conditions like flooding or tornadoes, termite or other pest damage, boundary disputes, any insurance claims filed, any significant repairs, and in some locations a death such as murder or suicide (this last one varies considerably from state to state). As the homeowner, you’re ultimately expected to know more about the home than anyone else does. Still, your agent will be a great help in filling out the required paperwork.
Regarding renting your house for a few months, the short answer is, yes, but it depends. Although most homes are bought and sold using a standard purchase contract, contingencies and addendums are often used to meet the individual needs of buyers and sellers. Your ability to rent the house for a few months after the sale can easily be included in a purchase contract. This is commonly called a “rent-back agreement.”
The “depends” part is if the buyer will agree to this arrangement. There are many ways you can make this attractive to buyers. You might lower the selling price slightly or you could agree to pay a slightly higher than market rent. Money can be very convincing. Even if you do find a buyer open to this, it’s likely to be for a very limited amount of time. If the buyer is planning to make the home their primary residence, most will be excited to move in as soon as possible. Your best chance is if you already have a new house picked out and have a closing date within a month, six weeks, or less. Even if an investor is the buyer, he or she will want a long term tenant. So, having a plan for when you’ll be moving works best. A 60 day rent back is typical.
There can be a few catches to this arrangement that you want to be aware of. The buyer’s lender (and insurance company) usually requires the buyer to live in the home. You may be able to get a short term exception but don’t expect it to go beyond 60 days. Also, it’s reasonable for the buyer to require a security deposit just like any other landlord. You won’t have to move to an apartment but you’ll probably need to put down a deposit. If your finances for your new home are tight, this could be an added financial burden. The buyer is now the owner. As the owner, he or she can set the rental conditions. For that reason, it’s wise for you to have the rental agreement signed before the purchase closes.
Beth, you and the seller need to treat the rent-back agreement just as you would any other rental. Take pictures of the home's interior and exterior to show any existing damage to prevent the new owner from taking your security deposit to pay for repairs. Include copies of these photos with the rental agreement. Make sure the rental agreement includes all cost such as insurance, utilities, and maintenance. Without a doubt, I’ve missed some important information about the disclosure process and rent back agreement. Your comments and insights on the subject will be appreciated. Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].