Drawbacks to Selling a Rental With a Tenant
Unless the new buyer is likely to be another investor, selling a rental home that is occupied by a tenant might cost the seller more than selling it as a vacant rental. That's because tenants often do not want to cooperate with showings, especially since there's little in it for them.
- Tenants might sabotage the sale.
Not every investor and tenant get along. Sometimes, a tenant resents the investor simply because the investor owns the home and the tenant is a renter. But there are other reasons why a tenant might sabotage the sale of rental:
- Notwithstanding a lease, when the home sells, the tenant might be forced to move out.
- A tenant might carry a grudge because maybe a repair wasn't promptly fixed in the past.
- There may have been a dispute involving a late rental payment.
Whatever the reason, the person speaking with potential buyers is often the tenant. A tenant who harbors ill feelings toward the investor may lead a buyer to believe that buying the rental is a bad idea based on the way the tenant presents the home. Such a tenant will not hesitate to purposely point out defects or, worse, make up problems that do not exist.
- Buyer's agents often pass on "By Appointment Only."
If a buyer's agent has a plethora of inventory to show a prospective home buyer, that agent might be very selective when choosing homes to show. Say 10 homes are easy to show and one home requires a 24-hour notice, the agent might not show the "By Appointment Only" home. Tenants sometimes feel that they do not need to return an agent's phone call, so even if the agent does call for an appointment, the tenant might not call back.
- Tenants might not allow a lockbox.
Without a lockbox, a buyer's agent is restricted from access. This means the tenant must be home to let the agent and buyer inside. If the tenant works during the day, it means the home can only be shown on the weekends or in the evening, which limits the number of buyers who can see the home. Moreover, sometimes a tenant will make an appointment and conveniently forget about the appointment, leaving the agent to stand on the doorstep and repeatedly ring a doorbell that nobody answers.
- Condition of rental home untidy.
I'm not insinuating that all tenants keep messy homes, but they have little incentive to keep the home in perfect showing condition 24 hours a day. They might not think twice about leaving beds unmade, clothing on the floor or dishes in the sink. If the rental home is not spotless, the condition may turnoff a potential buyer.
- Tenants may refuse to leave during the showing.
Buyers feel extremely uncomfortable when a seller or tenant is present during a showing. They feel as though they cannot freely speak nor address any concerns about the home in the presence of an outsider. This means they generally rush through the home and may miss or overlook qualities in the home that if noticed would otherwise make them want to buy it.
The bottom line is buyers need to envision themselves living in the home, and that's almost impossible to convey if the tenants are still in possession.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.