Selling a house with tenants can either be a problem or blessing in disguise!
Where does one even start?
Do the tenants need to move out first, or can the property be sold with tenants?
A lot will depend on the working relationship between landlord and tenants!
Seemingly helpful tenants at first might turn out to be tenants from hell and completely wreck any hope for a successful conclusion of a property sale!
Or the tenant ended up playing quite the crucial role in getting the property sold!
How does one know?
How can one improve the odds of getting it right, and actually be able to sell the property?
The following 5 Tips For Selling A House With Tenants will go a long way in getting clarity on all those questions:
A landlord isn’t prohibited from selling his property while there are tenants with a lease agreement occupying the property. This lease tends to precede the sale of property, which means that the tenant is perfectly entitled to remain at the property until the end of the lease period.
Practically, even though tenants are entitled to stay on, one will actually see quite a few tenants looking for another accommodation, due to the uncertainty created by an incoming landlord and/or unfavorable terms at the next lease negotiation!
What will the new landlord do with the property? Will he be as nice of a landlord as the current one? Will he renew the lease or move in himself? And then what happens to us as current tenants?
Yet another reminder why one has to read the lease agreement, so questions regarding the rights and obligations in the event of a property being sold, will not be unknown elements! In most cases, both landlord and tenant will give one another additional flexibilities in the event of the property transferring owners.
The tenant might even be allowed to cancel the lease prematurely and find a new accommodation once the decision has been made that the property will go onto the market! If those are the terms (with mutual consent), then no penalties can be placed upon the tenant if he chooses to break the lease agreement.
However, if nothing specifically is noted in the agreement regarding the sale of the property, the tenant will not be able to just walk away from the lease agreement. At least, not without being faced with hefty penalties!
As much as the new landlord needs to respect the terms of the established lease agreement, so will the tenant need to respect the agreed upon contract. Especially if the new landlord bought the property with a buy-to-let investment goal in mind!
One can imagine how emotional these situations can get, so it becomes very important for the landlord to properly communicate with the tenants about his near term intentions with the property.
Who knows, by playing open cards with the tenants, and perhaps giving them the first refusal, selling a house with tenants might be the fastest way one has ever sold a property! Even if the tenants don’t buy the property, they will feel very appreciated by having given that opportunity!
Quite a few rather big uncertainties remain:
Will the tenants be helpful and/or flexible when it comes to showing times for the real estate agent?
How will the property look like during showings?
How will the tenants behave during the sale of the property?
Tip #2 – Await the end of the lease
The huge uncertainty of not knowing whether the tenants will be helpful in getting the property sold, and hereby risking wasting a lot of time (and money lost as the property becomes stale by sitting on the market for weeks and months on end!), result in a lot of landlords preferring to rather wait until the end of the lease agreement before placing the property on the market.
With the last tenants having moved out, it’s now time to properly prepare the property for sale. Besides basic cleaning and freshening up the house, an empty house does show its imperfections more easily, so make sure to address those few cracked tiles in the kitchen or bathroom, as well as fix those small hairline cracks in the walls. Small renovations don’t need to cost a lot of money and will definitely help in the sale of the property!
Although we know that empty houses don’t sell easily, there’s a huge upside of a 24/7 ease of access for the real estate agents to show clients!
According to most real estate agents, selling a house with tenants is asking for trouble, will get messy and rarely ends on a good note!
Nonetheless, the reality of the situation is that not every landlord has the luxury to wait for months until the lease agreement expires before selling their property. Even then, it might easily take as long before the house is sold, which means loss of rental income for the landlord.
In the event that the tenants have offered their cooperation in getting the property sold, it’s important to lay down some ground rules. Personally, I refer to these opportunities (that’s what they are, really!), as the real estate agent’s chance to excel at managing expectations!
What will the condition of the property be like during the selling process?
How long in advance will the agent give the tenants notice for showings? How long is too long or how short is too short?
Will there be open houses?
Will the tenants be getting feedback of what’s happening with the showings?
In the end, will there be some sort of reward for the tenants in exchange for their assistance?
The more topics get covered early on in the marketing process to make sure everyone is on the same page, the better prepared the tenants will be, and the less likely miscommunication will occur between the real estate agent and the tenants!
On the one hand, the tenants’ privacy is important, while on the other, it’s important for them to understand the need to be accommodating for showings!
Once the landlord has established that his tenants will be cooperating with the home selling process, clear communication will be key!
Selling a house with tenants, uncooperative ones that is, will be viewed by most real estate agents as mission impossible!
These are the people who actually live in the house, day-in day-out, who are very familiar with the property, know every problem or shortfall the house has, and who are very familiar with the neighborhood!
Can you imagine the damage these uncooperative tenants could do?
Unleash these tenants on some unsuspecting interested buyers with their complaints, and that’ll be the last you ever hear from those buyers again!
Not only that, but it will be tough to get agents over the floor again as they know the clear and present danger at that property!
Why bring through interested buyers if you don’t know whether you’ll actually get access to the property, arrive yet again at a pig sty, or worse, having those tenants hang around during the showings!
Waiting it out until the lease expires all of a sudden doesn’t seem to be such a bad idea after all, does it!
Unless of course, they’re susceptible to the attractive incentives the landlord will offer!
Tip #5 – Incentivize the tenants
The cooperative tenants will very likely see some incentive reward heading their way for the help given during the sale process; the uncooperative tenants might change their bad attitude once they find out how much they’re about to make for being normal.
If simple communication isn’t cutting it with the uncooperative tenants, a great incentive will do the job!
Of course, this is a tit-for-tat exchange: the tenant needs to clean up his mess on a daily basis (ideally 1st thing in the morning), and make sure to be available for showings! The landlord will then work on a big discount on the rent (e.g. rent amount cut by 50% per month), or other great incentives, such as helping to pay for the outgoing tenants’ moving expenses!
Will it be an offer the tenants can’t refuse?
When selling a house with tenants, it can be a potential minefield!
From a legal point of view, the landlord needs to make sure to have verified his tenancy facts, his lease agreement and run his actions by his legal counsel, all in order to avoid getting stuck in an ugly legal fight with his tenants!
After all, it’s clear what’s in it for the landlord if the property sale goes thru, but what’s in it for the tenants?
Incentives! What a great way to get the tenants to cooperate after all!
Other Helpful Resources For Selling A House With Tenants:
- Obstacles Encountered When Selling A Home via Lynn Pineda
- How To Successfully Sell A Home Remotely via Kyle Hiscock
- 10 Reasons Why Empty Homes Don’t Sell Easily via ImmoAfrica
- Ten Tips for Selling a Tenant Occupied House via BiggerPockets
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— Xavier De Buck (@XavierDeBuck) March 18, 2016
If you think this article “15 Tips For Selling A House With Tenants” was an interesting read, please share it across your social media platforms!
About the author: The above article “5 Tips For Selling A House With Tenants” was written by Xavier De Buck, your top-producing Johannesburg real estate agent with Luxury Division of Chas Everitt International Group. Xavier has been nationally recognized and awarded for providing service excellence, exceptional property sales, whilst exhibiting the highest level of professionalism. With over 15 years combined experience as a real estate agent and real estate investor, if you’re thinking of buying or selling a home in Johannesburg, Xavier would love to share his property knowledge and expertise.
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