I Want to Sell, No I Want to Rent, No … I Want Both

What to do when a seller wants to sell, rent, one or both


 Cori Lamont  |    August 01, 2012
SellRentBothLRG

In today’s market, sellers are looking at options and ways to alleviate the pressure they feel in owning their home. Some sellers have pursued options that include a short sale or had an option provided to them with foreclosure, while others have decided to rent their property. The motivation as to why a seller chooses to rent could vary. For example, the home could be the seller’s second home, or the seller could be trying to purchase another property, or the seller could be attempting to pay down the principal on their mortgage. Regardless of the seller’s motivation in attempting to simultaneously rent and sell the property, they are looking for help — and that’s where you come in.

First and foremost, the sale and lease of property involve two separate interests in real estate. Therefore, licensees need to proceed with caution before jumping into simultaneously listing the seller’s property to sell and to rent. In addition, keep in mind that it is possible for a seller to enter into one listing to sell with one broker and a listing to rent with another broker, meaning the seller could have one listing to sell with broker A and a listing to rent with broker B. This scenario should raise one red flag: who gets paid, when and why? 

Let’s begin this conversation by discussing a few of the major issues that agents should keep in mind before entering into a listing to both sell and rent a property. 

Authority

Do you have the authority to market the property for sale and rental? The answer is most likely no, if you only have an exclusive right to sell listing contract. So how do you get such authority? After confirming with your broker that you are permitted under company policy to enter into a listing to both sell and/or rent the property, you must gain the authority to do so. This authority may be gained by either: 1) entering into a WB-37 lease listing or a commercial lease listing, if it’s a commercial property, or 2) including an addendum that provides all the necessary language to effectively market the property for rentals. 

If you choose the second option, then at minimum the following should be addressed: 

  • Listing date.
  • Parties to the listing.
  • Property address.
  • Additional authority wherein the owner gives the broker the exclusive right to negotiate a lease or rental of the property.
  • Term.
  • Broker’s duties.
  • Authorization for broker to use reasonable efforts to negotiate the lease. 
  • Performance of specific services — to be determined by parties within the addendum.
  • Statement that the agreement is not a property management agreement.
  • A statement that the agreement does not obligate the broker to perform any property management duties, including maintenance, unless specified in writing.
  • Lease terms and any marketing instructions — for example, rent or security deposits.
  • Owners Cooperation: the seller shall promptly notify the broker in writing of any prospective tenants with whom the seller negotiates during the term of the addendum and shall promptly refer all persons making inquiries to the broker. 
  • Commission
  • Language that addresses how the broker earns as well as when the commission is due and payable if a lease or rental agreement is entered into by the owner. 
  • Protected tenant: language stating that the term is extended for one year as to any tenant who personally or through any person acting for such tenant either: negotiated regarding the lease of the property, submitted a written letter of intent, or submitted a lease during the lease term. It would also be prudent to include language that addresses what names have to be on a list and delivered within three days of expiration of the listing. 
  • Fair housing language.

Seller Considerations

When a seller chooses to rent his property, the one concern is if the seller understands rental properties. While the seller looks at renting as an opportunity to increase cash flow, renting may not be a quick fix. The following are issues that the seller should consider:

  • The seller as a landlord is subject to administrative law ATCP 134 and statute chapter 704.
  • Needing to develop tenant selection criteria and obtaining credit reports to qualify potential tenants.
  • Proper advance to any current tenants is required before showings.
  • Offers will need to be subject to tenant’s rights.
  • The discussion the seller will have with an insurance carrier to determine insurance coverage during the rental period.
  • Additional expenses of hiring an attorney for lease negotiations. 
  • Whether the seller will continue to market the property to sell while the tenant is renting —the landlord will have to disclose to a prospective buyer that the property is rented. 
  • A full appreciation that by renting the property the seller will still be tied to the property. 
  • The tax and/or legal ramifications of renting the property, for example, whether the seller is permitted under the terms of their current mortgage to rent out the property or if they must modify their mortgage to reflect that it is now an investment property. Also, will the act of renting the property create an issue regarding the capital gains tax? These issues are both tax and legally oriented; while the licensee can raise a concern to the seller about following up with the seller’s tax and/or legal advisor, the licensee must not answer these questions. 

Role of the Agent

If your company prohibits the listing of rental properties, and you are a licensed broker, are you allowed to conduct independent practice for property management or leasing services?

Independent practice
Wis. Admin. Code § REEB 17.03 permits a licensed broker to conduct some independent practice. To do so, the licensee:

  • Must have a written consent from the broker-employer.
  • May not hire or engage other licensees in their independent practice.
  • Clearly understand that the practice is completely independent.
If you move forward
  • Will you also be a property manager? 
  • A property management agreement generally involves responsibility for the parties’ day-to-day operations, advertising, tenant application processing, qualifying and approval of tenants, receipt of earnest money and security deposits, execution of leases, lawn care and snow removal. 
  • There is no state-approved property management form. The WRA has created a property management agreement, the WRA-PMA. 
If you’re responsible for tenant screening
  • You must balance who will be able to pay while avoiding illegal discrimination against applicants.
  • Use a written tenant application form and predetermined screening standards to screen prospective tenants. The following criteria are recommended:
    • Income (minimum permitted) and employment. 
    • Credit (objective and consistent criteria). 
    • Personal references (objective and consistent). 
    • Behavior (may CCAP, but must be consistent).
  • Remember to be consistent and use uniform criteria for all!

Cori Lamont is Director of Brokerage Regulation and Licensing for the WRA.
 

  

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