You may have inherited a property with a tenant, or maybe you’ve been a long or short time landlord and your tenant recently expressed interest in buying your property. I’m NOT talking about a rent-to-own situation, I mean a standard purchase agreement with a buyer who just happens to be your current tenant. It’s not a “regular” sale, so how do you go about getting the ball rolling when a “tenant wants to buy our property”?
1. Although things may be amicable now, you should protect yourself and your tenant with a legally binding sales contract. While you can buy one at places like Staples, or I’m sure Google will turn one up, it will behoove you to either hire a Realtor to write up a contract or retain an attorney to do so. You’ll likely save on a full commission, because there’s no marketing and standard duties of a broker to uphold, but a Realtor is probably cheaper than an attorney retainer fee. Without a binding, ratified contract, the purchaser can’t proceed with obtaining a loan to actually buy your property.
2. Decide if the purchaser will do a home inspection. Likely they’re been living there and already know any issues, but they should probably do one just to make sure. Same goes for a termite and/or radon test. If the property was built on or before 1978, they also have the Lead Base Paint Disclosure to consider.
3. If they’re getting a loan from a bank, they will also need to complete an appraisal for the bank. This can’t be ordered until you have a ratified contract (see #1).
4. The tenant should continue to pay rent as usual until closing. If closing takes place on any day other than the last day of the month, as a landlord you’ll have to refund any prorated prepaid rent (ex. If you close on the 15th of November, the tenant should have paid November 1 for the month. At closing, you’ll have to reimburse them for Nov 15-Nov 30.) In addition, you’ll also have their security deposit to refund (assuming you have one).
5. Once you go to closing, all parties will sign paperwork granting the title to the property to the new owner. At this time, any remaining keys or garage passes should be given to the new owner. Anything that happens after this is the responsibility if the new owner, just like a regular purchase agreement. Possession is the day of settlement.
If you have questions about logistics or need help, feel free to call me 703.283.6120 or email me Laura@TheLJRGroup.com