Does lease back affect the sale price?

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

akula1488 said:

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

Click to expand...

In those situations, the buyer and seller could do a lease agreement on the side if the buyer intends to occupy the home.  Some of those longer rent backs that I got were from investors but fortunately in a hot market like this buyers will do whatever they need to do to lock up a home.

USCTrojanCPA said:

akula1488 said:

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

Click to expand...

In those situations, the buyer and seller could do a lease agreement on the side if the buyer intends to occupy the home.  Some of those longer rent backs that I got were from investors but fortunately in a hot market like this buyers will do whatever they need to do to lock up a home.

Click to expand...

That's still mortgage fraud but if the buyer is willing to take the risk then that's on them.

Not sure about side deal but the homeowners insurance can give it away...Legally you need landlords insurance or non owner occupied. For Irvine where cash buyers are the majority, this is not an issue...

USCTrojanCPA said:

akula1488 said:

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

Click to expand...

In those situations, the buyer and seller could do a lease agreement on the side if the buyer intends to occupy the home.  Some of those longer rent backs that I got were from investors but fortunately in a hot market like this buyers will do whatever they need to do to lock up a home.

Click to expand...

akula1488 said:

Not sure about side deal but the homeowners insurance can give it away...Legally you need landlords insurance or non owner occupied. For Irvine where cash buyers are the majority, this is not an issue...

USCTrojanCPA said:

akula1488 said:

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

Click to expand...

In those situations, the buyer and seller could do a lease agreement on the side if the buyer intends to occupy the home.  Some of those longer rent backs that I got were from investors but fortunately in a hot market like this buyers will do whatever they need to do to lock up a home.

Click to expand...

Click to expand...

I explain the risk to my clients so it's an "eye wide open" type of decision.  Not sure why a 60-day rent back is fine but a 90-day rent all of a sudden triggers investment property pricing but that's the number of days that was picked.  To me, it's not fraud if the buyer has every intention of occupying the home as their primary residence even with a rent back that may exceed 60 days. In this market, it could be the difference between getting a home and not getting a home. 

USCTrojanCPA said:

akula1488 said:

Not sure about side deal but the homeowners insurance can give it away...Legally you need landlords insurance or non owner occupied. For Irvine where cash buyers are the majority, this is not an issue...

USCTrojanCPA said:

akula1488 said:

USCTrojanCPA said:

Kick53rv3 said:

We are looking at a house that the agent has informed us the seller wants 2 to 6 month lease back. Generally do these houses go for a cheaper price because of it or do they have the same pricing as others?

We are in no hurry to move if it nets us a deal but otherwise we would rather not deal with it.

Click to expand...

Very good question, typically in this market buyers will provide either a free rent back or a discounted rent back to be competitive (the more offers the house gets the higher the likelihood that the seller will get a free rent back).  I've gotten a few of my sellers a free rent back of 3-4 months in this market.

Click to expand...

3 to 4 months? Then the buyers couldn't claim owner occupy status and get a loan with the best interest rate unless the buyers are paying cash. So in order not to commit Mortgage fraud, the buyers with financed offers would have less max they could go due to higher interest rate, so that might affect the sale price indirectly

Click to expand...

In those situations, the buyer and seller could do a lease agreement on the side if the buyer intends to occupy the home.  Some of those longer rent backs that I got were from investors but fortunately in a hot market like this buyers will do whatever they need to do to lock up a home.

Click to expand...

Click to expand...

I explain the risk to my clients so it's an "eye wide open" type of decision.  Not sure why a 60-day rent back is fine but a 90-day rent all of a sudden triggers investment property pricing but that's the number of days that was picked.  To me, it's not fraud if the buyer has every intention of occupying the home as their primary residence even with a rent back that may exceed 60 days. In this market, it could be the difference between getting a home and not getting a home.

Click to expand...

Rent backs need to end on 59 days if you want to allot enough time for the borrower to move in by day 60 to not be in violation.

That's just the guideline set forth by Fannie and Freddie.https://guide.freddiemac.com/app/guide/section/8405.1

For Mortgages secured by a Borrower?s Primary Residence or a second home, the Fannie Mae/Freddie Mac Single-Family Uniform Security Instrument and the Second Home Rider provides that a Borrower, except as otherwise permitted by the instrument, must occupy the Mortgaged Premises within 60 days of executing the Security Instrument, or as applicable, occupy and use the property as the Borrower?s second home, and continue to occupy the Mortgaged Premises, or as applicable, keep the Property available primarily as a residence for Borrower?s personal use and enjoyment, for at least one year after the date of occupancy or as applicable the date of the Second Home Rider. When Freddie Mac approval is required, the Servicer must document the Borrower?s request and forward a recommendation to Freddie Mac via e-mail to shortsales@freddiemac.com. Freddie Mac will review the request, supporting documentation and the Servicer?s recommendation and notify the Servicer of its approval or denial of the request. The Servicer must maintain the Borrower?s request, supporting documentation, if applicable, and Freddie Mac?s decision in the Mortgage file.

Background: As much as two months sounds arbitrary, it?s decided by a government sponsored enterprise and they must distinguish between investments and owner occupied.  Why do you ask?  These mortgages get pooled into securities and they have a fiduciary duty to ensure what they say on the prospectus and contracts adheres the loans that support these MBS structures.

At the individual level it seems benign, but when it?s scaled, there are issues that arise.

AccidentalAnalytics said:

Background: As much as two months sounds arbitrary, it?s decided by a government sponsored enterprise and they must distinguish between investments and owner occupied.  Why do you ask?  These mortgages get pooled into securities and they have a fiduciary duty to ensure what they say on the prospectus and contracts adheres the loans that support these MBS structures.

At the individual level it seems benign, but when it?s scaled, there are issues that arise.

Click to expand...

It's very arbitrary, sorta like the difference between book accounting and real life accounting.