The first piece of advice many Realtors give homeowners who want to sell their home while a tenant is in residence is short and not-so-sweet: Don’t do it.
Though there are always exceptions, renters rarely are eager to help homeowners market their home.
Any experienced home seller can share the frustration of selling a property while living in it - trying to keep it immaculate and always available for buyers to visit. But at least home sellers have a financial motivation to put up with the inconvenience. Renters, especially if they are not eager to move, have no motivation other than kindness to keep the home pristine and open to a constant stream of prospective buyers.
Realtors themselves are sometimes reluctant to show homes that have a tenant in place because of the potential for coming up against an uncooperative tenant. Some Realtors say a home with a tenant will sell for a little less than a home that is unoccupied or has the owner in residence.
Though it may seem that the simple answer would be to wait until a lease has ended and the home is vacant before putting it on the market, reality is not so easy. First, many homeowners need the rental income to pay the mortgage on the property, so their preference is to keep the home rented until the last possible day. Second, particularly in the District, there are rules about ending a tenant-landlord relationship.
“In D.C., tenants have the ‘right of first refusal’ when the home goes on the market and when the first offer is received,” said Dale House, director of Coldwell Banker Property Management for the Mid-Atlantic Region.
“There’s no notification process, either, that allows the homeowner to evict the tenant as long as they pay their rent,” he said. “The only option is that an owner may move back into a property with 90 days notice. If the owner is not moving back in and just wants to sell the home, then they have to negotiate with the tenant.”
Mr. House said the rules are easier on landlords in Virginia and Maryland, typically requiring 30 or 60 days notice to the tenants that they will need to move.
“It’s pretty common in this market to be selling a home with a tenant in it,” said Chris Hager, a Realtor with Long & Foster Real Estate in North Bethesda. “There are lots of reluctant landlords out there who opted to rent their property rather than sell it, and now they want to put it on the market.
“There’s the potential for conflict between the tenant and the landlord, especially if it was not made clear to the tenant from the beginning that the owners wanted to sell,” Mr. Hager said.
Mr. House said landlords need to be honest with their tenants and communicate clearly.
“Don’t be sneaky,” Mr. House said. “The very worst problem is if you try to sneak the property on the market and sell it before telling the tenants.”
Nick Pasquini, broker-owner of Century 21 Redwood Realty in the District, Arlington and Ashburn, Va., said selling a home with tenants in it only works well if the homeowner can get the tenants’ cooperation.
“Eight out of 10 times, the tenant will say OK, they will cooperate, but when the house needs to be shown to prospective buyers, it is dirty or the tenants won’t let the agent in,” Mr. Pasquini said. “This is particularly true if the place is on the market for a couple of months, because even the most cooperative tenant will be sick of keeping the place perfect all the time and sick of leaving when buyers want to see the property.”
Mr. Pasquini suggested the homeowners consider giving a concession on the rent for keeping the place in good condition.
“The landlord needs to establish realistic expectations, such as making the place look good and making it available,” Mr. Pasquini said. “The concession can be 10 percent of the rent for each month it is on the market, or something like that.”
Mr. Pasquini said tenants who travel often may be easier to work with because open houses can be arranged on weekends when the tenants are away.
“You never get a second chance to make a first impression,” Mr. Pasquini said, “so it is particularly important to have the place in strong showing shape on the first and second weekends on the market.”
Mr. Pasquini said one option is to have the home staged even while the tenant is living there.
“In return for cooperating, the tenant should be reassured that there will be established hours for showing the property and that the contact person for the listing will be a Realtor rather than the tenant or the owner,” Mr. Pasquini said.
Mr. House said landlords must do their best to communicate as early as possible with their tenants about open houses and expectations for cleanliness, such as making beds, keeping dishes out of the sink and cleaning the floors.
“You can negotiate anything, so you can even consider money as an incentive for the tenant to move out,” Mr. House said. “Just make sure you know the local jurisdictions and the possibility of any penalties, especially in D.C.”
Even if a tenant moves out before the home is listed, the homeowner should expect some repercussions from selling a home that has been rented and is vacant.
“Your home will probably show better without a tenant, but you do need to budget for a professional cleaning and painting,” Mr. Hager said. “A bigger issue is if the tenants had a pet, because you may need to replace the carpet or flooring. In fact, a lot of landlords don’t accept pets at all, even though that reduces your pool of prospective renters by about 50 percent.”
While the main disadvantage to having the tenant move before selling a home is the lack of rental income, there is another risk: potential damage that could go unnoticed because the residence is empty.
“If the water heater overflows while someone is home, it can be taken care of quickly, but if the property is vacant, there can be serious damage from something that goes unfixed for several days,” Mr. Hager said.
Like any other real estate decision, choosing to keep a tenant in place while selling often comes down to math.
“You may get a little less value for your home if a tenant is living there, but if you need the money to pay the mortgage, then it may be worth it to keep the place rented until the last minute,” Mr. Pasquini said.