Navigating the tricky process of selling a home with tenants in place
The negotiation process for putting a property on the market while the tenant is in place is an art. If it is not done correctly, a tenant can effectively stop an owner from marketing the property until it becomes vacant. Over the years, Tiner Property Management has successfully negotiated this with tenants hundreds of times. We have seen many listing agents mess up the process so badly that they ruin their ability to regain the tenant’s cooperation in the sales process and have to remove the home from the market until it is vacant. When Tiner Properties is the listing agent for a home we manage, we acquire the tenant’s cooperation in the sales process by negotiating an On Market Addendum and we do not charge the owner for that service (when we are not the listing agent, a $500 fee is applicable). Before you start, it is important to understand the Tenant and Owner’s rights:
Understand the owner’s rights: The owner has a right to show and sell their property – even while the tenant is in place. If the tenant is in the middle of a lease when the home sells, the lease runs with the property at the time of sale (the new owner assumes the tenant under the terms of the old owners lease).
Understand the tenant’s rights: Tenants are entitled to a properly written and served 24 Hour Notice to Enter EVERY TIME someone enters the home to show it. If they insist on that right, it effectively makes it nearly impossible to set up showings (Buyers and Buyers agents’ just move on to easier homes to show). In addition, even if the tenant has been properly served a Notice to Enter, if the time comes for the appointment and the tenant comes to the door and says this is not a good time – you can’t force your way in or get the police to help you. Tenants are not obligated to allow a Realtor lockbox to be placed on the property. Lastly, a tenant can verbally run a property down to prospective buyers if they are frustrated with the process or simply do not want to move.
Start by scheduling a face to face meeting with the tenants: With the above in mind, our practice is to call the tenant and tell them that the owner must sell their home and we would like to meet with them to explain their rights and responsibilities in the process. Assure them that they have rights and options and that you will respect them. When we meet with them to solicit their cooperation in the sale of a property, we explain that the owner has listed the home for sale (it’s a done deal) and apologetically serve them a Notice to Vacate while explaining that we may be able to rescind that notice to vacate depending on their desire and choices.
Rules for giving notice to vacate:
1. If the tenant is on a lease, the Landlord cannot give the tenant notice to vacate for a date that is prior to the end of the lease term.
2. If the tenant has resided at the home for less than one year at the time of service, a tenant may be given a 30-Day Notice to vacate. If the tenant has resided at the home for a year or more, a 60-Day Notice to Vacate is required.
3. Regardless of the length of the tenancy, the tenant may give the Landlord a 30-Day Notice to Vacate. This is true even if the Landlord had already given the tenant a 60-Day Notice to Vacate. For example, on January 1 the Landlord gives the tenant 60-Day Notice to Vacate the property by March 1. If the tenant finds a suitable home right away, they may in turn serve the landlord a 30 day notice to vacate which might end considerably earlier than March 1st.
Shift to the good news: It is important to start with the Notice to Vacate whether they end up cooperating in the showing process or not. Once they know they can’t stop the possibility that the home will be sold and that they will have to move, we give them good news:
1. You have many rights as a tenant and I promise to honor and respect those rights in this process: “You are entitled to stay in the home through the end of the lease regardless of the sale – the lease runs with the property so you will be safe to know you will be here at least that long".
2. When you just served a Notice to Vacate: “There is a very real possibility that the buyer of this home will be an investor (not an owner occupant) who would love to keep an excellent tenant like you.”
3. “We want to offer you the first chance to buy the home.” If the tenants want it and are willing to pay the list price / fair market value, and able to get pre-approved for a loan, this can be a win-win for everyone involved.
4. “We can not put a lockbox on the property without your written permission.”
5. “Realtors and buyers will not be able to enter the property without 24 hours written notice or your advance permission.”
Ask for their help: We say, “If you do not want a lockbox we can wait until the home is vacant – but if you cooperate with the sales process we will give you a discount in your rent AND there is a very real possibility we will be able to cancel our Notice to Vacate and you will not need to move.” We normally start by offering $100 monthly discount for the tenants full cooperation in the sales process as outlined in our On Market Addendum (which addresses lock box, showing times, signs, and appointments with appraisers, inspectors… after the escrow is opened). Be willing to increase the amount of the discounted rent depending on how close you are to the end of the lease term, the value of the home (higher priced properties tend to require greater discounts), and the urgency of the owners need to sell.
Tiner Properties track record of success: In the past 3 months, Tiner Properties has successfully negotiated our On Market Addendum with 27 of 30 tenants that we approached. At the close of escrow, many of the tenants have thanked us for treating them with such respect in the process. Most importantly many owners have been able to sell their homes even when in the rather difficult position of trying to do so while the home was tenant occupied.
Posted on Fri, November 22, 2013