What to Know About Selling Your Rental Home with a Tenant in Place

Selling a rental home that’s currently occupied by a tenant adds an extra layer of complexity to the already intricate real estate process. As a seller, it is crucial to understand the legal rights of the tenant under the lease agreement and local laws, while also considering your own needs and objectives. Here are some factors you should consider, as well as the benefits and challenges you may encounter.

Please note that this is for informational purposes only and is not intended as legal or financial advice. Laws may vary based on your location.

Can You Sell a Property That’s Occupied by a Tenant? 

One of the first questions many landlords have is whether they can sell a property that’s already occupied by a tenant. Although you can sell your property, it’s important to know that most state laws grant tenants the right to remain in a rental property until the lease or rental agreement expires, even after a sale has taken place. 

However, selling with a tenant isn’t always the best choice. Before putting your property on the market, take some time to consider the pros and cons of both the legal and practical implications of selling a home that’s currently being rented out. What are your tenant’s rights under the lease agreement and your state or local laws? What are your own needs as a seller?

For example, when it comes to advertising and showcasing your property to potential buyers, having a tenant in place can have varying effects. Some buyers may see it as an opportunity; for others, it could be a deal-breaker. Generally, the entire process tends to go smoother without a tenant, but every situation is unique and should be weighed carefully. 

If you decide to put the property on the market while the tenant is still living there, you’ll need to prioritize the tenant’s satisfaction and cooperation. This will make the selling process easier and help minimize disruptions. On the flip side, an unhappy tenant could make it difficult to show the property and could negatively impact the sale overall.

In certain circumstances, you may be able to terminate the tenancy if you believe having an unoccupied property will simplify the process—but it’s crucial to familiarize yourself with the applicable laws and regulations governing the termination of a tenancy to ensure you’re acting within the confines of the law and respecting the rights of the tenant.

It’s also worth considering the possibility that the tenant might be interested in purchasing the property themselves. Before undertaking the effort of listing the house on the market, you may want to ask your tenant if they have any interest in buying the property. If so, it could simplify the process and lead to a mutually beneficial arrangement.

Weighing the Benefits & Challenges: Selling a Rental Property with a Tenant

With all the above considerations in mind, you’ll also want to weigh the following factors when making a decision about selling your property:

The Terms of the Tenancy

The terms of the tenancy play a crucial role when determining whether to sell a tenant-occupied property. In the case of a month-to-month tenant, ending the agreement is relatively straightforward, as you’ll only need to provide the amount of notice as required by state law. Long-term tenancies, however, may present various challenges. While a long-term tenant might appeal to certain buyers (like investors), it might discourage buyers who intend to live at the property themselves. It’s worth consulting with your real estate agent to determine whether you should leave the decision regarding the tenant to the buyer or terminate the tenancy before finalizing the sale.

Potential Buyer Pool

Having a tenant-occupied property can influence how many interested buyers you have. For example, a property occupied by reliable tenants is often viewed as desirable by real estate investors. Buyers who can’t move in right away may see properties with tenants whose lease is ending soon (or on a month-to-month basis) as valuable options. However, having a tenant in place might limit the number of potential buyers who plan to move into a property immediately.

Property Type and Market

The type of property and its location can also impact buyer preferences. Properties that are located in areas that have a high number of renters, like university towns, tend to attract investment-oriented buyers who are interested in purchasing a property with a tenant. It’s also important to consider the market price of the property. Higher-priced properties typically generate interest from buyers who are looking for personal residences rather than rental income. These buyers may be less inclined to take on the responsibility of a tenant while waiting for the lease to expire. Evaluating the property’s potential return on investment from an investor’s perspective can help gauge its attractiveness in the market. 

Tenant and Tenancy Conditions

Your tenant’s personal characteristics and the state of the tenancy can significantly impact the selling process. A tenant who maintains the property, communicates effectively, and cooperates with requests (including showings) can be an asset during the sale. In contrast, a tenant who neglects housekeeping, is unresponsive, or doesn’t want to allow people in to see the property can hinder your efforts. Financial considerations also play a role, as buyers may be reluctant to assume the responsibility of a tenant with outstanding debts or below-market rental rates.

What to Do When Your Current Tenant Might Negatively Impact the Sale

After weighing the pros and cons, you might decide that the best option is to sell your property without a tenant. If the tenancy is month-to-month, all you’ll need to do is provide your tenant with the proper notice as required by state law. If your property is in a rent-controlled area, it’s important to verify whether selling the property qualifies as a valid reason (also known as “just cause”) for terminating the tenancy, as regulations can vary based on location.

Dealing with a tenant who has a long-term lease presents greater challenges; the best course of action may be to attempt to negotiate with them. A common approach is to offer a financial incentive in exchange for their agreement to modify the lease and move out early. If the tenant accepts the deal, you have two options: 

• Ensure the tenant vacates the premises in time for thorough cleaning and staging before listing the property, or 

• Advertise the property as “vacant upon closing”

However, there are potential risks when it comes to negotiating an early move-out with your tenant. For example, if they don’t comply with the revised terms and decide to remain in the property beyond the closing, the new owner may be forced to evict them. In this case, you could be held legally accountable for all costs related to the eviction.

If timing allows or you’re unable to reach an agreement with the tenant, you may want to wait until the lease naturally expires before listing the property. In this scenario, it’s crucial to provide proper notice to the tenant. Be sure to adhere to the specific guidelines outlined in the lease agreement, inform them of your intention to sell, and confirm that the lease will not be renewed.

Each of these options should be carefully evaluated based on your specific circumstances, local laws, and the nature of your relationship with the tenant. By navigating these considerations tactfully, you can move ahead with selling your property without a tenant and ensure a smoother transition for all parties.

Marketing Considerations for Selling With a Tenant in Residence

When selling a tenant-occupied property, it’s important to approach the marketing process strategically. Whether the tenant will continue living in the property after the sale or not, there are steps you can take to facilitate a smoother sale and maintain a positive relationship with them. 

First, it’s advisable to market the property as both a primary residence and a potential investment property. This allows buyers to envision how they might use the property based on their needs. Buyers who are looking for a home for themselves might not mind purchasing a primary residence with a tenant if they don’t plan to move in immediately.

To make the sale process as smooth as possible, consider the following guidelines:

Accommodate the tenant during showings. Let the marketing agent know about the tenant’s requirements, such as a minimum of 24 hours’ notice for showings (as specified in the lease). If there are specific times when the property can’t be shown due to the tenant’s schedule, this should be communicated as well. The listing agent will ensure that buyers and other agents respect these requests. While it’s possible to make special requests for shorter notice, you should create a new agreement with the tenant if any changes are needed.

Allow privacy during showings. Buyers, especially investors, prefer to view properties without interruptions, so ask the tenant to leave the property while it’s being shown. Consider offering them a gift card to a nearby coffee shop to provide a small gesture of appreciation for their cooperation.

Maintain the property’s condition. Keep the property in good condition during the marketing phase by offering to hire a cleaning or yard service while the property is on the market. Since the tenant may not have a vested interest in the sale, it’s crucial for you, as the seller, to ensure the property remains in a presentable state.

Help the tenant find a new residence. If the tenant will need to move out, offer to help them find new housing. If you own other investment properties, for example, let them know about any available openings. If you’re not an investor, you can provide local listings or ask your friends if anyone knows of suitable properties.

Address rental payment issues. It’s vital to ensure the tenant is up to date with rent payments, as a delinquent tenant can negatively impact the sale. Consider taking appropriate action if the tenant is behind on rent, such as forgiving the delinquency in exchange for their move-out or pursuing court action and eviction if necessary.

The Importance of Consideration, Reliable Tenants, & Tenant Screening 

While financial incentives can help alleviate concerns, it’s equally important to be considerate and respectful towards your tenant throughout the selling process. Remember, the property is still their home during the sale, and an unhappy tenant can hinder the sale by impeding showings or neglecting upkeep. 

Having reliable tenants in your property significantly reduces the risk of potential complications during the sale process. It provides peace of mind, knowing that your investment is in good hands and that the tenant will cooperate and maintain the property’s condition during showings. Additionally, a thorough tenant screening process can help mitigate the chances of encountering issues such as late or missed rent payments, property damage, or legal disputes.

Tenant Screening Center offers a range of services designed to streamline the screening process and provide valuable insights into prospective tenants. Our screening reports provide a comprehensive overview of each applicant, enabling you to make well-informed decisions based on reliable data. With tenant screening, you can ensure that your property remains in good hands and your investment is safeguarded. Contact us today at 800-523-2381 or order your reports online. 

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