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It’s every seller’s dream. You list your home on a Thursday, host a whirlwind open house over the weekend, and by Sunday evening the offers (and escalation clauses) are pouring in. By Monday morning, a bidding war begins. Your dream of selling your home fast is coming true.
At first, the dollar signs are mesmerizing. But then it hits you. Where are you going to live, if you move out before it’s time to PCS?
In a fast-paced sellers’ market, competitively priced homes with desirable updates can sell at lightning speed. While that’s great news for your bank account, it can be a serious logistical challenge if your PCS move timeline, temporary lodging, or new home isn’t quite ready. Enter: the lease-back agreement.
What Is a Lease-Back Agreement?
A lease-back, also known as a rent-back, allows the seller to stay in their home for a predetermined time after closing. Essentially, you become a short-term tenant in the home you just sold, giving you breathing room to complete a PCS move or finalize new housing. In action, everything proceeds much like a traditional home sale. However, at closing, while ownership transfers to the new buyer, you (the seller) remain in the home until a mutually negotiated date, under agreed-upon terms, such as rent or a flat-fee rate.
Lease-backs are more common than one might think, especially in military markets where homes might go under contract quickly, but PCS orders or school dates haven’t aligned with a quick closing. Additionally, if you’ve received a cash offer, the closing timeline speeds up monumentally, since the sale isn’t contingent upon a mortgage approval and underwriting, with some offers even forgoing home inspections or appraisals to clinch the winning bid.
Key Lease-Back Contract Points to Understand and Define
Before a lease-back is initiated, you’ll want to ensure that either you, your attorney, or your real estate agents draw up a contract and clarify key elements in writing.
- Lease duration: How long will you remain in the home after closing? Most lease-backs range from a few days to a couple of months.
- Rental rate: Will you be "renting" the home back at the buyer’s mortgage rate or pro-rated rent? Or will you negotiate a flat-fee?
- Deposits and insurance: Buyers may request a security deposit. At first, the idea of paying a deposit on your own home may seem counterintuitive. But remember, once closing happens, this is your former home and you are effectively entering a leasing agreement. The buyer is within their rights to ask for a deposit or a price concession at closing. Additionally, you will need to change your insurance policy from a homeowner’s to a rental policy.
- Utilities and maintenance: Will utilities (electricity, gas, water, trash, internet) be included in the rental rate? Lawn care and maintenance? HOA dues and property taxes?
- Condition of premises: Document any damages not captured in the offer and denote the full condition of the property, including furnishings, fixtures, equipment, or appliances that convey with the sale.
- Unexpected repairs: There’s nothing Murphy’s Law loves more than to wreak havoc on military families, and unexpected repairs top the list. If the unexpected occurs, who will be responsible for the repairs? Water heater goes out, or the roof gets hammered by a rogue hail storm? Ensure the contract clarifies who will be responsible for both making the repairs and any subsequent bill. (TIP: Consider offering a home warranty to the new buyers for this exact situation.)
- Exit plan: Establish a firm move-out date and what condition the home should be left in, to include expected cleaning standards and return of a security deposit. Consider your move-out date carefully, and ensure you’ll be able to meet the deadline, as the buyer is counting on you to hold up your end of the contract and move out when you agreed to.
Just like any rental agreement, clarity and documentation protect both parties. Remember, your relationship will change at closing from buyer/seller to landlord/tenant. Ensure there are clear contractual terms in place before closing.
Why a Lease-Back Can Work Well for Military Families
Military life can be unpredictable enough without the stress of being homeless between houses or temporary lodging at your outbound duty station, particularly when pets, children, and commutes are also in the mix.
- School transitions: A few extra weeks may let kids finish out a semester and maintain continuity at their existing school.
- PCS and pack-out timing gaps: Orders and report dates may not align with closing dates or new duty station availability (such as inbound temporary lodging), as well as attempting to secure new pack-out dates with military movers.
- Construction delays: If you're building a new home, particularly if the financing is contingent upon your existing home sale, a lease-back can offer flexibility in the event of unexpected builder delays and give you a little breathing room.
- Commutes and schedules: Preserving your existing commute can be a significant stress-relief for work, school, and extracurricular activities and keep your current schedules intact.
If a buyer can offer the flexibility for a lease-back, it can be a tremendous relief for military families.
Photo by Rido via Canva.com
Why Would a Buyer Entertain a Lease-Back?
Provided that the risk can be successfully mitigated with a tight contract and agreed-upon terms, a buyer might be willing to delay moving into the premises and entertain the risk of becoming a temporary landlord for a handful of reasons. The home might be in an ideal location or school district, offer desirable amenities, or an easy commute, as well as offer a bit of extra income in the form of rent.
Offering a lease-back is a powerful buyer concession and will probably stand out amid the competition to result in the winning bid, especially if the seller needs flexibility in moving out.
Pros and Cons of Lease-Backs as a Seller
Pros:
- Flexibility during PCS chaos
- Avoids double-moves or short-term lodging at your outbound location
- Can be a negotiation perk in a hot market
Cons:
- You’re now a tenant—your buyers become your landlords
- Risk of liabilities for damages post-closing
- Must stick to the lease-back timeline, or risk eviction
Selling with a lease-back has several advantages, but don’t ignore or expose yourself and the sale to unnecessary risk, particularly where property conditions are concerned.
Even if the buyer foregoes a formal property inspection as part of their offer, you may want to consider one to ensure a full, unbiased documentation and assessment of the property gets recorded. At a minimum, just as you would do with a rental property, as a seller (now renter) ensure you promptly provide your buyer (now landlord) with a written record of any damages noted. Otherwise, you run the risk of the buyer (again, "landlord") alleging damages occurred post-closing and demand repairs, replacement, or monetary compensation.
How to Propose a Lease-Back in Your Offer Process
If you suspect your home might sell quickly, it’s smart to plant the lease-back seed early. Let your real estate agent know upfront so they can incorporate it as a term in the listing or expectation in a counteroffer.
After an offer is made, ensure you document the lease-back in writing in the offer, as a term of the sale and appropriate addendum or contingency depending upon your state.
The Bottom Line
In a military move, having a few extra weeks in your home can be the difference between a smooth transition or scrambling for short-term lodging, juggling new commutes (especially for kids and school), and coordinating a new pack-out. A lease-back won’t work for every situation, but if you're in a scenario where your home sells fast, the flexibility is a perfect strategy to allow a little more time and peace of mind.
If you're a homeowner facing a military move, we've created a free guide just for you to guide you in the "sell vs. rent" decision. MilitaryByOwner is your trusted guide for PCS planning and real estate success, along every step of your military journey.
