Renting home to prospective buyers when closing delayed could be risky business

It may be tempting for sellers to temporarily rent their home to a buyer when closing is postponed, but it’s also an option that’s fraught with potential problems.

Q. We agreed to sell our home, and the deal was supposed to close earlier this month. However, now it will take at least two or three weeks longer to close because appraisers, home inspectors and lenders in our area have been backlogged with work.

The buyers would like to sign a shortterm rental agreement with us now so they could move in before the sale finally closes and the property’s title is transferred into their names.

This would be fine with us because the temporary rental income would help us to pay the mortgage on our new home and the other mortgage we’re still holding on our old one.

What do you think of this plan?

Q. Not much. It’s understandable that a homeowner wouldn’t want to get stuck paying for a mortgage on the home that they are planning to sell, as well as a new one they’ve already purchased, but agreeing to let a buyer move in before the title is properly transferred is a risky proposition.

First, allowing the buyers who have agreed to purchase your old property to move in now will provide them with a number of weeks to “test drive” the home. If they become stricken with buyer’s remorse, they may want you to slash the agreed-upon sale price, or they could even try to cancel the deal.

Renting the home out on a short-term basis also raises important insurance issues. You could be held financially liable if one of the buyers or one of their visitors gets hurt on the property before the title changes hands, especially if the company that provides your homeowners policy is not properly notified about the rental arrangement.

And God forbid that you should run into the same problem that hit one of my goodhearted neighbors who signed a brief rental deal with his buyers because the home sale couldn’t be completed by its scheduled date.

Just 24 hours before the long-delayed deal was finally expected to close, the bank canceled its approval of the buyers’ loan after discovering that they had filed for bankruptcy a few weeks earlier.

The prospective buyers refused to move out of my neighbor’s house. They never paid him any rent, and he had to spend thousands of dollars in legal fees to evict them, plus thousands more to get the home back into shape so it could be marketed again.

The home went back on the market for three months — during which time my friend was forced to pay the mortgages on both his old home and his new one — until it finally sold for $12,000 less than the original buyers agreed to pay six months earlier.

You could certainly help your buyers look for an apartment or hotel that accepts short-term tenants, but in my opinion, allowing them to move into your old house before the transaction is finalized would simply be too risky.

REAL ESTATE TRIVIA

A survey of recent home shoppers by Realtor.com found that 85 percent of them would be willing to accept a smaller home or sacrifice special amenities if it would let them live much closer to their job.

Q. What’s the difference between an “artist’s conception” and a “rendering”?

A. For real estate purposes, they’re the same thing. It’s a drawing of a proposed residential or commercial project, though usually not to scale.

Q. We have been seeing a lot of ads for a company called Purplebricks, which says it can save thousands of dollars for owners who want to sell their property because the company doesn’t charge a commission. Is this legitimate?

A. It appears legit, but it doesn’t really matter. That’s because the U.K.-based company announced July 3 that it is withdrawing from the U.S. market to refocus on its profitable operations in England and Canada.

Purplebricks arrived in the U.S. only about two years ago. It offered to market a seller’s home for a flat fee of about $4,000, as long as the seller also agreed to pay the buyer’s agent commission, which typically works out to about 3 percent of the home’s selling price.

An example provided on Purplebricks’ website said a Florida seller of a $306,000 home would save approximately $5,580, compared with paying a traditional real estate commission of 6 percent.

The company said the U.S. pullout was caused by rising losses from its rapid expansion, though real estate analysts also note that Purplebricks has had a number of changes in top management and that many of its agents recently left because the huge earnings they expected never materialized.

Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.