How to Sell a Home with Tenants in Maryland

Selling a tenant-occupied home as an owner or landlord can be challenging. Beyond the legal and practical considerations, showing a property with tenants can deter some prospective buyers. Additionally, if tenants feel pressured, they may seek legal action. We want to answer some questions about selling a home with tenantsHow to Sell a Home with Tenants in Maryland

To ensure a smooth process for everyone involved, follow these guidelines.

Can You Sell a Rental Property With Tenants?

Yes, as a landlord, you can sell a rental property with tenants living in it in Maryland, provided you respect the existing lease agreement and your tenants' rights. It's crucial to manage the sale fairly and transparently. Before proceeding, here are some pros and cons to consider.

Advantages of Selling a Tenant-Occupied Property

Investor Appeal: Properties with current tenants are highly attractive to investors since they provide immediate rental income without the need for new advertising or tenant searches.

Furnished and Staged: Tenants usually have the property furnished, offering potential buyers a clear idea of the space's functionality and making the home more appealing.

Disadvantages of Selling a Tenant-Occupied Property

Disadvantages of Selling a Tenant-Occupied Property

Dissatisfied Tenants: If tenants are displeased with the sale, they might make aspects like scheduling showings more challenging.

Property Condition: If the property hasn’t been inspected recently, it might be in poor condition, complicating the marketing process and possibly leaving a bad impression on potential buyers.

Common Questions on Selling a Tenant-Occupied Property

What Happens to the Current Lease Agreement?

When a rental property with tenants is sold, the new owner takes over the existing lease. This means that all the terms in the lease, such as rent and duration of tenancy, stay the same unless both the new owner and tenants agree to make changes. The new owner must respect the lease terms and cannot ask tenants to leave or increase rent until the current lease ends.

If the current tenants decide to move out instead of staying, a lease amendment can be used to adjust the termination date of the lease. A lease amendment is a legal document that alters the terms of an active lease agreement with approval from both the landlord and tenant.

You can create a lease amendment including details such as the tenant's name, effective date, specific terms being modified and signatures from all parties involved.

Once the document is prepared, it will be sent to your tenants via email for them to review, sign and send back for your signature. The amendment becomes legally binding once all parties have signed it.

Home sales expert Bill Gassett of Maximum Real Estate Exposure provided helpful guidance when selling a home with tenants. Bill has thirty-eight years of experience selling properties, including those with renters.

"One of the best tips I can give you is to have the owner incentivize a tenant to allow showings. One of the most significant drawbacks of selling a house with renters is having them reject showings. It happens all the time.

I recommend to my seller clients that they offer something of substance, like a relocation fee or a 1000 dollar reduction in rent. The tenants will only earn their reward if they say yes to all showings. This agreement will be put into writing and signed by both parties."

How to Go About Selling the Property

Selling a rental property with tenants can be challenging. Here are some good steps to get you started:

  1. Be Transparent with the Buyer Clearly state in your listing that the property is tenant-occupied. Provide potential buyers with details about existing lease agreements and management processes, including any property management software used, to facilitate a smooth transition.

  2. Communicate with Your Tenants Inform your tenants of your plans to sell as early as possible. This gives them time to decide their next steps. Once the property is sold, the new owner should send an introduction letter to the tenants, sharing contact information and outlining any changes.

  3. Schedule Convenient Showings Give tenants at least 24 hours' notice before showings, or more if local laws require it. Be mindful of their schedules to avoid disruptions. For instance, avoid scheduling tours when tenants work from home.

  4. Maintain the Property’s Condition The property's condition can significantly impact the sale. Address maintenance issues and property damage promptly. Consider hiring professional services for landscaping and cleaning to ensure the property remains in good shape and makes a positive impression on buyers.

  5. Resolve Lease Violations Ensure any lease violations are addressed before finalizing the sale. This includes collecting overdue rent payments, as a delinquent tenant can negatively affect the transaction.

By following these steps, you can navigate the complexities of selling a tenant-occupied rental property and achieve a successful sale.

What Rights Do Tenants Have When the Landlord Sells?

What Rights Do Tenants Have When the Landlord Sells?

Tenants have specific rights that must be respected when you decide to sell your property. These rights are typically outlined in the lease agreement and state law. Key tenant rights include:

      1. Right to Notice: Tenants are entitled to adequate notice of the sale, typically 30 to 60 days, depending on state laws and lease terms.
      2. Right to Privacy: Landlords must provide reasonable notice before showing the property to potential buyers, usually 24-48 hours in advance.
      3. Right to Stay: A tenant's lease generally remains in effect until its expiration date, even if the property changes ownership. New owners must honor existing leases unless otherwise negotiated.

What Does "Sold Occupied" and "Tenant Occupied" Mean?

      • Sold Occupied: This term means the property is being sold with tenants still living in it. The buyer inherits the tenants and the terms of their existing lease.
      • Tenant Occupied: Similar to "sold occupied," this indicates that the property has tenants at the time of sale. Buyers should be aware that they must respect the current lease terms and tenant rights.

Can a Tenant Refuse Showings?

Yes, tenants can refuse showings under certain conditions:

      1. Inadequate Notice: If tenants are not given reasonable notice, they can legally refuse entry.
      2. Excessive Showings: Tenants may refuse if the number of showings becomes excessively disruptive to their daily lives.
      3. Safety Concerns: Tenants can refuse entry if they have legitimate safety concerns.

To avoid conflicts, maintain clear communication with your tenants and schedule showings at convenient times.

Do Tenants Have to Move Out of a Home That’s Being Sold?

Tenants are not required to move out just because the property is being sold. Their lease agreements remain valid until the lease term ends. However, there are a few scenarios where tenants might need to move:

      1. Lease Expiration: If the lease term ends before or shortly after the sale, the new owner may choose not to renew the lease.
      2. Mutual Agreement: Tenants and landlords can mutually agree to terminate the lease early, often involving compensation or relocation assistance.
      3. Sale to Owner-Occupant: If the buyer intends to live in the property, they may negotiate an early lease termination with the tenant.

What if the tenant is hurting your chances of selling

  • Month-to-Month Lease - If your tenant agrees to a month-to-month lease, you have the advantage of being able to end the tenancy by giving notice as per state laws. Ensure that selling the property is a valid reason for termination in rent-controlled areas.
  • Long-Term Lease - Dealing with tenants on long-term leases can be tougher. It's best to negotiate with them, possibly offering financial incentives for an early lease termination. If they agree, you can prepare the property for sale or market it as vacant upon closing.
  • Negotiation Risks -  There are risks involved in negotiating an early move-out. If the tenant overstays their agreement, the new owner may need to initiate eviction proceedings, potentially leading to costs for which you could be held responsible.
  • Wait for Lease Expiration -  If you find that negotiation isn't possible or if the timing allows, you might want to wait until the lease naturally comes to an end before putting the property up for sale. Inform the tenant in accordance with the terms outlined in the lease agreement that you intend to sell the property and will not be extending their lease.

By tactfully considering and exploring these alternatives, you can enhance your prospects of selling the property on advantageous terms.

Selling a house with tenants can be challenging, but with careful planning and respect for tenant rights, it can be a successful process. For personalized advice and support, contact the Bob and Ronna Group. We are here to help you manage your property sale efficiently and effectively.

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