Regardless of whether it’s a sale or purchase, most real estate transactions are pretty complex. However, when dealing with a transaction that is tenant occupied, an entire other layer of challenges are added. Earlier this year, I helped my clients sell their inherited childhood home, which involved vacating a section 8 tenant. Luckily, I was no stranger to transactions like these and was able to guide my sellers every step of the way.
Preparing to sell a tenant occupied property
The process of selling a tenant-occupied property involves preparation, persistence, and lots of patience. In addition, expectations must be clearly set between you, your client, AND the tenant. Communication is ALWAYS key during every transaction, but it is even more crucial when a third party (such as tenants) is added to the equation. Therefore, ensuring you’ve got ALL your ducks in line will be a huge determinant in the success of simultaneously selling a property and vacating a tenant.
Breaking the News
During my seller consultation, I obtained as much information as possible. Lease agreement, contact information, Section 8 manager information, and any other terms regarding the lease that could affect the sale of the property. Here I set the transaction expectations with my clients. I made them aware of best and worst case scenarios and laid out our game plan for moving forward with the sale of their home. Surprises are bound to arise, but I do my best to cover as many bases as possible and mitigate the possibilities of unanticipated circumstances.
The biggest hurdle was breaking the news to the tenants and ensuring I abided by the laws in which the property was located. Renter laws in California are very strict, so making sure you’re giving tenants adequate time to vacate is important. A 30-day notice is required for all tenants who’ve occupied less than a year, and a 60-day notice is required for all tenants who’ve occupied a year or longer or if they’re a part of a fair housing program (i.e. Section 8).
Additionally, tenants often get defensive and protective of the place they’ve called home for X number of years, which you’ve now asked them to leave. Although the agent is 99.9% of the time looked at as the bad guy, it is my job to tug and release at the right times. So what did that intel? I assessed the situation and strategized the best way to handle the communication, property access, and move-out timeframes with the tenant. The goal here was to protect my client (the seller), keeping the tenant calm, while maintaining control of the situation and following rental legalities along the way.
So I made sure to document EVERYTHING, all notices, requests to view the property, and any other communications with the tenant. This created a paper trail of all the steps I’d taken in requesting the tenant to vacate. At the same time, I also set clear expectations with the tenant and explained their rights and the owners’ rights with regard to accessing and selling the property. This won’t guarantee that the tenant will cooperate, but it will set a ground of understanding (hopefully) and allow me to leverage my communication trail in the event something goes south.
Getting the Job Done!
After I was done playing property manager, it was time to take out my real estate cap and get working on the sale. Most of the traditional real estate transaction aspects remain the same. However, I made certain to be very clear about time frames and the tenant’s status with all buyer’s agents. Disclosing these details with agents upfront saved my client from dealing with buyers that were not interested in pursuing a tenant-occupied property.
As a result, we only negotiated with serious buyers who understood the details of the transaction and were willing to move forward with the purchase despite prolonged timeframes. There were a couple offers received that were willing to purchase the property as-is and take on the responsibility of vacating the tenant. However, such offers tend to have less favorable terms (lower purchase price, seller credits, etc.) since they are assuming the risk of a potentially non-cooperative tenant instead of negotiating that the property be delivered vacant. Thus, I laid out the pros and cons of all offers to my clients and assisted them in highlighting their needs and goals. This allowed them to assess the details related to all offers and helped them select the offer best suited to their circumstances.
Smooth sailing from here on out? Not necessarily.
Accepting an offer is half the battle. The other half involves getting through the buyer’s due diligence periods (inspections and appraisals) and, most importantly, vacating the property. Nonetheless, we breezed through the buyer’s inspections, and all that was left was the tenant’s move out. So, I checked in with the tenant CONSTANTLY. This involved calls with the Section 8 office, assistance with rental applications, and a close eye on timeframes.
One of my last conversations with the tenant came with a final request. The tenant needed a few more days to clear out their belongings… This is where my preparation kicked into play. I had negotiated a week of buffer time after the tenant’s original move-out specifically for any delays. So I spoke with the sellers, who agreed to grant a few extra days and came out looking like heroes to the tenants (brownie points). On move-out day, the keys were delivered and we were in line for closing!
In a perfect world, the property would’ve been delivered in clean and perfect conditions, but unfortunately that was not the case. There was some cleaning and trash disposal that was required, but the extra time negotiated within the transaction granted us the ability to prep the home before handing over the keys to the new buyers. I assisted my client in coordinating the cleaning, trash hauling, and closing out the property account with the current section 8 manager just in time for closing day.
Many times, sellers are scared to ask a tenant to leave, are under the impression that they are unable to request property access or think that it is impossible to sell a tenant-occupied property. With a clear strategy and a seasoned real estate agent to execute the game plan, anything is possible!