Assisting a client in buying or selling small income residential property is common practice for many real estate licensees. However, it would surprise many to learn that many of the agents doing so fail to ensure adequately that their client interests are properly protected. As a property manager firm, we often take over management of a building immediately after closing. It then quickly become apparent that some important things were missed and need to be addressed & corrected.
The PAR Standard Agreement of Sale States (Assuming the Standard PAR Agreements are being used) the following:
“If Seller has identified in writing that the Property is subject to a lease, possession is to be delivered by deed, existing keys and assignment of existing leases for the Property, together with security deposits and interest, if any, at day and time of settlement…”
This means that as the buyer you agree to be bound by the terms, whatever they are, of the existing leases. Who wants to agree to accept & abide by a legal document that they have never seen? Surprising it seems as though many people do… I say this because time and time again I see Buyer’s Agent submitting offers with tenants and they do not attached the TOP (Tenant Occupied Addendum). Utilizing the TOP protects both the Buyer & Seller. The Seller is protected since they are providing copies of the leases and asking the Buyer to acknowledge each of them, thus helping prevent suits from arising out of some previous representation about the leases. The Buyer is protected as they can review the leases as a contingency of the agreement and if the leases do not match the needs of the Buyer, the Buyer may terminate.
The default period is 5 days for the leases to be provided to the Buyer & then 5 days for them to review the leases. These dates can be modified but seem to provide a sufficient amount of time. You can even take it one-step further and ask that the existing tenants provide you with estoppels certificates.
A common misconception is that when the new owner acquires the property that they can make whatever changes they want to the leases. Evict all the tenants, or generally do whatever they want. This is not necessarily the case…
The buyer agent has to uncover the needs of their client identify what is important. Is the buyer looking for financial security? Then a property with strong existing leases or leases that can be legally modified would be important.
Is the Buyer seeking a property to be vacated after the closing? Then a property with month-month leases, leases that can be terminated after transfer or some other similar provisions would be the type of property to seek.
The bottom line is the Seller’s Agent needs to be clear what the Seller is selling, including any binding agreements. The Buyer’s Agent needs to ensure that the Buyer has the opportunity to know what they are buying.
It is common to recommend inspections of the physical property but where many agents fail is failing to inspect ancillary aspects of the property such as current leases & agreements, if the current use is permitted, if there are any municipal violations. Many agents are very capable of assisting clients in buying & selling single-family residential real estate, however when income & tenants are involved they fall short. It is never bad to ask for help, if you have a question about something pertaining to income properties, tenant issues, etc contact a Professional Property Management firm. On almost a daily basis, an agent or broker from a surrounding firm will contact us with a question or with some need for our services. We can provide consulting services, assistance with conducting buyer due diligence review of the current & historical property’s financial performance as well has projecting future performance. We are here to help…Buying & Selling
Name: Peter N. Lamandre
Bio: Peter N. Lamandre is a Licensed Real Estate Broker, Consultant, Speaker, Mentor and Licensed Real Estate Instructor in Scranton Pennsylvania. He currently owns and operates Better by Design Real Estate, LLC a full service Real Estate Brokerage in Scranton, PA. One of the areas of specialty for Better by design Real Estate, LLC is property Management. Peter is a member of IREM (Institute of Real Estate Management), the National Association of REALTORS®, the Pennsylvania Association of REALTORS® and the Greater Scranton Board of REALTORS® where he services on various committees and taskforces. Peter can be contacted at his office at (570) 969-2105 or by visiting Better by Design Real Estate, LLC.