Having a renter living in a home, condo, cottage, or other property that you're trying to sell adds a wrinkle to an already involved process. For purposes of advertising and showing the property to its best advantage, you'll need to take into account both the tenant's rights under the lease or rental agreement as well as state or local law, and your own needs as a seller.
- Depending on the situation, having a tenant in place might be a benefit for some buyers—but it might also be a deal-breaker for others.
- Overall, the showing and marketing of a property will go more smoothly if there is no tenant.
- You might have some options for ending the tenancy before the sale is complete if you believe not having a tenant will help the sale.
- If you decide to have a tenant in the property while you're selling, you'll want to ensure that the tenant is happy and cooperative.
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. Keep reading for further detail on your legal obligations and practical considerations and approaches.
Can I Sell a Property With a Tenant Living in It?
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, most states' laws give tenants the right to remain in a rental property after a sale until the lease or rental agreement expires. However, just because you can sell with a tenant doesn't necessarily mean you should.
Should I Sell My Property With a Tenant Living in It?
Before you put your property on the market, you'll want to consider the pros and cons of selling while a tenant is still living in it. In some situations, having the tenant remain during and after the sale might work out perfectly. But without a crystal ball, the best you can do is weigh the pros and cons of selling your particular property with a tenant in place.
The Pros and Cons of Selling a Tenant-Occupied Property
You'll want to consider the following factors when evaluating whether selling with a tenant in place is a good idea.
- The terms of the tenancy. If the tenant is month-to-month, then all that you or a new buyer would need to do to end the tenancy is to give the amount of notice required under state law. If the property is in a rent-controlled area, however, you'll want to check the applicable laws to make sure that the new buyers could end the rental agreement. Talk with your real estate agent to discuss whether it makes sense to leave the decision to keep a month-to-month tenant to the buyer or terminate the tenancy before the sale closes. If the tenant has a lease, then you'll want to consider how much time is left in the lease term. A long-term tenant might attract some buyers, such as investors, but turn off buyers who plan to live in the property themselves.
- The pool of potential buyers. Many real estate investors are happy to pick up a property with an existing tenant who is up to date with rent and has a lease or rental agreement in place. If the tenant's lease will expire shortly after the sale closes, or if the tenant is month-to-month, then the property might also appeal to buyers who want to reside in the property themselves but cannot move in immediately (due to having to sell their current house or having to move, for example), or who don't mind waiting a bit until they can move in. However, if you have a tenant in a single-family house that is most likely going to be purchased by a family hoping to move in quickly, having a tenant will probably reduce the number of potential buyers.
- The type of property. If the property is in a complex with a lot of renters, or is in an area with a lot of renters, such as a university town, it's likely there's a pool of investment-oriented potential buyers who won't mind a current tenant. Also, examine the market price of the property. Most of the time, high-priced properties will be purchased by people who plan to live in them—and who aren't looking to make money off of using the property as a rental. Few buyers in this category will want to take on a high monthly mortgage bill while waiting for a low-rent-paying tenant's lease to expire. Also keep in mind that different investors will expect certain types of properties to have better returns on investment than others—put yourself in an investor's shoes and run some numbers on your property.
- The tenant and state of the tenancy. Personal characteristics of your tenant will come into play when selling. A tenant who doesn't keep up with housekeeping, isn't responsive to communication, or is just generally difficult will only hinder your selling efforts. On the other hand, a tenant who is neat, clean, responds to communications (such as requests for showings), and who is willing to assist can be an asset. Also, keep in mind the financial side: A current tenant who owes money or is paying below-market rent is likely to be a headache that few buyers want to take on.
What to Do When Having a Current Tenant Would Hurt Your Chances of Selling
Once you've examined the pros and cons, what are your options if you decide that selling without a tenant is the better option?
If the tenant is a month-to-month tenant, you're in luck—simply end the tenancy by giving the tenant the notice required by state law. If you're in a rent controlled area, check the law to make sure that selling the property is a valid reason (just cause) for ending the tenancy.
If your tenant has a long-term lease, ending the tenancy might not be so easy. Your best bet probably is to attempt to negotiate with the tenant. Offering money in return for the tenant's agreement to modify the lease and move out early is a common approach. If the tenant accepts the deal, you can either have the tenant clear out in time to completely clean and perhaps stage the property while it's on the market, or you can advertise that the property will be "vacant upon closing."
Negotiating an early move-out with the tenant could be a bit risky, 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 could then hold you legally responsible for all costs associated with the eviction.
If the timing works, or if you cannot come to some sort of arrangement with the tenant, you might 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.
Marketing Considerations When Selling With a Tenant in Residence
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. 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.
- Make showing times easy for the tenant. Let the agent marketing the property know that the tenant needs at least 24 hours' notice for showings (or whatever time is specified in the lease for entry). Let the agent know if there are times that the property cannot be shown due to the tenant's schedule. The listing agent will make sure that any buyers and other agents wanting to view the property will abide by your timing requests. You can always contact the tenant with a special request to show the property on shorter notice, but unless you reach a new agreement with the tenant, the notice required for entry is governed by the lease.
- Ask the tenant to depart the property during showings. No buyer, investor or otherwise, likes to be followed around by a resident—especially one who might be grumpy about the impending move. The buyer should be able to freely view the property. Offer the tenant a gift card to a nearby coffee shop to use while the property is being shown.
- Make keeping the property in good condition easy for the tenant. Offer to hire a cleaning or yard service for the time when the property is on the market. Since a tenant doesn't have a stake in the sale of the property (and might even be in the process of moving out), it's important that you, the seller, take some responsibility for keeping the property in show-worthy condition.
- Help the tenant find a new residence, if needed. If you own other investment properties, alert the tenant to any appropriate openings. If you are not an investor, you could suggest sources of local listings or let the tenant know that you will ask your friends whether anyone knows of available properties.
- Ensure that the tenant is caught up with rent. Some landlords are more lenient than others in letting tenants get behind in rent. If the tenant is staying on and is behind in rent, it's time to take action. A delinquent tenant is not a good selling point. One option might be to forgive the delinquency in exchange for the tenant moving out. Court action and eviction is also an option if the tenant is unable to pay rent.
While financial incentives can usually ease the situation, sellers shouldn't underestimate the benefits of being considerate toward the tenant and respecting that the property is still the tenant's home while it's on the market. An unhappy tenant can break a sale, especially if they prevent showings or decide to stop cleaning.