The South Jersey real estate market has gained a reputation for its competitive nature. First time buyers, in particular, are feeling the heat, struggling with the severe competition and lack of affordability. Let’s take a look at the stats*:
- In 2022, only 26% of homebuyers were first time buyers, the lowest level ever since the National Association of Realtors began tracking data
- The average age of a first time homebuyer in 2022 was 36 years old, an all-time high
- The average mortgage rate for first time homebuyers in 2022 was 5.04%, up from 3.11% in 2021
- The median home price for first time homebuyers in 2022 was $395,000, up from $325,000 in 2021
*data acquired from National Association of Realtors, This Old House, Bankrate and CrossCountry Mortgage
It is because of limited inventory of homes for sale, and high demand from eager buyers, that is causing this challenging environment in South Jersey. Buyers are feeling the pressure to make their offers stand out against 5, 10, sometimes 20+ offers depending on the type of home, its condition, and location. We discussed in a prior blog post about non-price incentives you can offer sellers to beat out other offers, including terms such as:
- Flexible closing timeline
- Higher Earnest Money Deposit
- Agreeing to waive up to a certain amount of home inspection items
- Agreeing to make up some (or all) of any appraisal gap
📮 RELATED POST: 6 EXPERT TIPS FOR BUYING IN A SELLERS MARKET
But there’s actually one little-used offer term that many buyers don't know about, but might be a gamechanger in getting your offer accepted by a seller… and that is offering a:
Rent Back Period
A rent back period, also known as a leaseback, is a contractual agreement between the buyer and the seller that allows the seller to continue occupying the property for a specified duration after the closing of the sale.
You might wonder why on earth the seller might want to continue to live in a home they want rid of, or why you’d want to find yourself in such a situation. But actually this arrangement can be a 🏆win-win🏆 for both parties involved:
- You benefit from making your offer stand out by including this incredible term.
- And the seller gains extra time to transition to their new residence.
- Not only that, but many sellers use the money they make from selling their property to buy their next home. Unfortunately when they are reliant on those funds, and reliant on their home to sell, it makes their own offer on their next home weaker! Because it suddenly becomes a “contingent offer”, which are viewed as less-attractive. Because what if their property takes longer to close than expected? It’s a gamble to accept a contingent offer. The purpose of the rent back period allows the seller to close on the home, get the money from you, the buyer, and then they essentially become tenants while they buy their next home, non-contingent!
Benefits Of Utilizing A Rent Back Period
- Differentiation in a competitive market: In a market characterized by multiple offers on a single property, a rent back period can make your offer stand out. It demonstrates flexibility and understanding on your part, showing the seller that you are willing to accommodate their needs. Some buyers even offer a free rent back period, allowing the seller to live in the home rent-free for a few weeks!
- Added incentive for the seller: Sellers might be more inclined to accept an offer that allows them to remain in their home for a certain period after closing. This additional time can be invaluable, especially if the seller has not yet secured their next residence.
- Time for transition: Transitioning from one home to another can be challenging, and a rent back period gives sellers the breathing room they need to move without the added pressure of an immediate move.
- No rush for vacancy: Sellers don't have to rush to move their belongings and vacate the property right after the closing. This can lead to a smoother moving process and a positive experience for both parties.
Steps To Incorporate A Rent Back Period In Your Offer
- Understand the seller's needs: Before drafting your offer, try to understand the seller's circumstances. Are they purchasing another home? Do they need time to downsize? By tailoring your offer to their needs, you show empathy and consideration. If you’re not sure what their needs are (you’re not exactly a mind reader are you?!), encourage your realtor to contact the listing agent to ask. An experienced, trusted real estate agent should already have done this for you!
- Consult your realtor: Your real estate agent is your best ally in navigating the complexities of the market. They can guide you through the process of including a rent back period in your offer and help you determine an appropriate length for the lease.
- Specify the rent back period: Clearly state the duration of the rent back period in your offer. Common periods range from a few weeks to a couple of months. Make sure it aligns with the seller's plans and your own timeline. The more flexible you can be, the better.
- Negotiate terms: As with any contract, negotiation is key. Discuss the terms of the rent back period with the seller's agent and be prepared to find common ground that benefits both parties.
- Security deposit and rent: Decide whether a security deposit is necessary for the rent back period and outline the monthly rent. These terms should be fair and in accordance with local laws.
- Document everything: Once the terms are agreed upon, ensure that all aspects of the rent back period are documented in writing as an addendum to the purchase agreement. This legally binds both parties to the agreed-upon terms. Your real estate agent will help you find a vetted real estate attorney to look over the contract for you.
- Flexibility: While a rent back period can greatly enhance your offer, be prepared for flexibility. If circumstances change for either party, open communication and understanding are essential for a smooth transition.
Tips For A Successful Rent Back Experience
- Coordinate moving dates: Plan your moving dates carefully, ensuring that they align with the end of the rent back period. This will help you avoid the inconvenience of delayed occupancy.
- Property condition: It is expected that a seller will leave the property empty of all items and debris, and “broom-clean”. Your realtor will help you conduct a final walkthrough at the end of their rent back period. In the case of the property not being ready, your real estate agent and attorney will guide you through it.
- Communication: Maintain open communication with the seller throughout the rent back period. This can help address any concerns promptly and create a positive experience for all parties.
In the highly competitive South Jersey real estate market, utilizing a rent back period can be a strategic move that sets your offer apart from the rest. By understanding the benefits, taking the right steps, and maintaining clear communication, you can create a win-win situation for both you and the seller.
