Having someone living in your home, condo, cottage, or other property while trying to market the property for sale market necessitates some extra consideration. For purposes of advertising and showing the property to its best advantage, you’ll want to take into account both the tenant’s rights under the lease or rental agreements as well as state or local law, and your own needs as a seller.
(Then again, maybe the tenant wants to buy the property! Before going through the effort of putting the house on the market, don’t forget to ask.)
This is usually the first question that arises when a landlord wants to sell. The simple answer is yes, you can sell a property with a tenant still living in it. In fact, the laws in most, if not all, U.S. jurisdictions give the tenant the right to remain in the property for the term of the lease, continuing on after the sale if the tenant’s lease remains in force.
In some situations, having the tenant remain during and after the sale may be fine with you. You will, however, want to consider the advantages and disadvantages to selling the property while it’s occupied. If you don’t think the property will appeal to buyers with a tenant living in it, other options may exist.
It’s entirely possible to market a property as an occupied one with a valid lease in place. This may actually be an attractive option if the property is an apartment or condo or would make a good investment property.
Many investors are happy to pick up a property with an existing tenant who is up to date with rent and has a long-term lease in place. However, if the current tenant owes money or is paying below-market rent, you may want to consider other options.
You can try to negotiate with the tenant regarding the length of the lease. Offering a monetary sum in return for the tenant agreeing to modify the lease and move out early is a common approach. That way, you can either have the tenant clear out in time to completely clean and perhaps stage the property, or you can market the property as “vacant upon closing.”
This option has a bit of risk associated with it, however. If the tenant decides to ignore the renegotiated terms and remains in the property beyond the closing, the new owner can be put in the situation of having to evict the tenant. The new owner may then hold you legally responsible for all costs associated with the eviction.
If the timing works, you may just want to wait until the tenant’s lease is up before you put the place on the market. Notify the tenant in the manner specified in the lease that you are planning to sell and will not be renewing the lease. If the tenant has a month-to-month rental agreement, then the waiting time will be short.
Assuming the tenant will be staying on post-closing, and depending on your property's size and layout, you might want to market it as both a primary residence and a potential investment property. Let the buyer decide how to use it. Some buyers who want a home for themselves will not mind purchasing a primary residence with a tenant if they do not plan to move in immediately.
There are some things sellers can do to make a sale go more smoothly when a tenant is living in the property, regardless of whether the tenant will remain after the sale. An uncooperative tenant can truly break a sale, especially if he or she prevents showings or gives the property a sloppy or dirty appearance. Keeping the tenant cooperative is of utmost importance.
If the tenant will be moving out at closing, it also helps to remember that any move is difficult, and that keeping track of showings and neatness is not going to be in the forefront of the tenant’s mind.
The takeaway here is that in most cases, the showing and marketing of a property will go more smoothly if there is no tenant in residence there. But, if that’s not a possibility, the next best thing is for the seller to ensure that the tenant is happy and cooperative. Financial incentives can usually ease the situation, but a seller shouldn’t underestimate the benefits of being considerate to the tenant and respecting that the property is still the tenant’s home while it’s on the market.