Over the years, many clients have approached me with their intention to sell their occupied rental homes. Ideally, for the property owner, the best scenario is to keep the house occupied right up until the closing date. This allows them to continue collecting rent while avoiding costly turnover and fix-up expenses. From a financial perspective, this arrangement is highly beneficial—but how can it be successfully executed?
Selling to the Existing Tenant
If the current tenant is interested in purchasing the home and is financially qualified, the only major challenge is agreeing on a price. In these cases, I offer my client/owner a significant break on the commission since I am not splitting it with another agent or covering marketing costs. By lowering the owner’s selling expenses, it becomes easier to reach a price agreement. An added benefit of selling to the existing tenant is that it eliminates any difficulty in getting renters to cooperate with the marketing process.
Keeping Tenants in Place While Selling
If the occupants do not wish to buy the property, the challenge shifts to maintaining tenancy until the home is sold. To determine if marketing the home while it’s occupied is feasible, I always conduct an inspection. If the property is too cluttered or poorly maintained, it may be best to wait until the tenants move out and the home is refreshed before listing it. However, if the tenants maintain a presentable living space, the next step is motivating them to cooperate.
Incentivizing Tenant Cooperation
Encouraging tenants to cooperate during the marketing process can typically be achieved in one of two ways:
Option One: Offer a Sale Success Bonus
Providing tenants with a moving allowance or success bonus upon the home’s sale and closing can encourage cooperation. I have offered bonuses ranging from $500 to $1,000 in the past, but this arrangement requires the owner’s approval.
Option Two: Reduce Rent During Marketing
A temporary rent reduction can also serve as an incentive for tenants to keep the home in good condition and allow showings with reasonable notice. I typically include a showing agreement that ensures tenants make the property available for viewing with at least a four-hour notice.
Managing Lease Timing and Buyer Expectations
If the lease still has several months remaining, additional challenges arise. Most buyers of single-family homes intend to move in shortly after closing, making it difficult to sell a property with a long-term tenant still in place. However, some tenants may be willing to negotiate an early move-out if a sale occurs. Others might agree to remain in the home at a lower rent until the buyer is ready to take possession.
For landlords planning to sell, it is beneficial to structure lease agreements to expire during peak real estate seasons. This strategic timing can minimize disruptions and maximize selling potential.
The Value of Selling Rental Properties
Facilitating rental home sales can significantly enhance your business’s revenue while maintaining positive relationships with property owners. In many cases, securing a sales commission is far better than losing a management account altogether. By understanding the dynamics of these transactions in advance, you can make the process smoother and more rewarding for all parties involved.
ABOUT THE AUTHOR
Rob Massey Jr., CPM® has served as a local president for NARPM®, the Institute of Real Estate Management, and the Apartment Association in his hometown of Louisville, KY. He has taught various property management classes and managed nearly 1,000 apartments and houses before scaling back his property management company to pursue the national internet listing service he founded known as RentalHouses.com. He is now vice-president of industry development for Rentals.com since Primedia, Inc. acquired RentalHouses.com in January of 2007. He can be reached at rob.massey@rentals.com.
Copyright © 2024 NARPM®. Reprinted from the issue of the NARPM® Residential Resource news magazine.
