Dream Team

The first time you heard the term, “escrow” you may have been thrown for a loop. While the word may have had you confused the first time, here are some essential things to know about escrow–what it is, what it’s used for, and how it works.

What Is Escrow?

Escrow is a legal notion where money or assets are held by a third-party on behalf of two other parties in the middle of completing a transaction.

An escrow company provides two parties the service to make sure everyone does what they say they’re going to do. The escrow company acts as a middleman to protect the assets while the home purchasing process is happening.

Applied to real estate transactions–when buying or selling a home, escrow is the trusted third-party, who is someone other than the buyer or seller, who will hold money to make sure you execute the transaction correctly.

The key thing to remember here is that the third-party is a trusted party. This is a neutral entity that doesn’t care whether a home buyer or home seller comes out ahead of the other. The primary role of an escrow service is to make sure each party in a real estate transaction holds up its end of the deal.

Search for a reputable escrow company, or ask your real estate agent for a recommendation to find a trustworthy service.

How Escrow Works When Purchasing A Home

When buying a new home, you agree to pay the purchase amount within a certain time, and the seller will provide the home they’re selling. Your home purchase is probably contingent on a few things; namely financing and a home inspection. While you’re securing financing and scheduling a professional home inspection, you will make an escrow payment, or an “earnest deposit,” writing a check to an escrow provider in an agreed-upon amount that shows your intent or seriousness of purchasing that home. This gives the seller some reassurance that you’re serious.

Escrow opens when a buyer and seller sign an agreement for a real estate transaction, then deliver the agreement to an escrow officer who helps make sure everyone meets the contract conditions.

Escrow closes when everyone did everything they agreed to do, and the homeownership is transferred to the buyer.

Once the escrow provider verifies everyone held up their end of the agreement, they’ll either give you a refund, apply it to the purchase price or the home, or pass the money along to the seller (if the buyer doesn’t satisfy requirements).

Escrow Accounts For Homeowners Insurance And Property Taxes

The other time you’ll hear about escrow may be for an escrow account–which is slightly different than for a real estate transaction. When making your monthly mortgage payments on your home loan, you may also be paying for additional home expenses like property taxes and homeowner’s insurance as part of one lump sum.

Property taxes are usually an annual expense, and sometimes homeowner’s insurance is as well, though many insurance companies accept monthly payments. To alleviate the lender’s risk of you not budgeting properly for these payments, they make sure tax and insurance get paid by adding them to your monthly mortgage payment.

This portion of your monthly payment is deposited into a separate, escrow account. These funds are kept in escrow (by a company outside of both you and your lender) until their respective payments are due once a year, then they’ll make the payment on your behalf. You’ll discuss this with your lender when you finalize the purchase of your home, so it shouldn’t be a surprise.

If there’s a difference in how much you owe and how much you’ve contributed to the escrow account, your lender will let you know. You’ll either receive a refund if you overpaid, or if you didn’t contribute enough, your lender will pay the difference, then send you a bill for the additional amount. You may be able to pay the bill over the coming year.

If you need help finding an escrow company or have any questions about the escrow process for real estate, get in touch!

When your job is heavily tilted toward customer service, you know that you have to deal with all kinds of people — and you aren’t going to like all of them. That’s just part of life! But there’s a difference between having a slight personality clash with a client or rubbing each other the wrong way every now and then, and a client-agent relationship that is downright toxic.

Sometimes it’s hard to tell whether a client is going to be a difficult fit or a downright nightmare for you. If you’re new to the business or just need a refresher, here are some big red flags that your seller client, in particular, is probably going to be the latter.

They don’t understand the market

Let’s be clear: By itself, this is not an enormous scarlet flag that should send you running for the hills. However, it’s usually one of the first indications that a seller doesn’t have the best judgment, doesn’t like to let facts get in the way of their opinion, has an ego problem, or some other more serious issue that could be a dealbreaker.

On the other hand, it could just be an indication that they haven’t been paying attention to the market and don’t know what to expect in terms of pricing or timing. So take this one with a grain of salt, unless it’s accompanied by several other questionable behaviors.

They think quirky renovations increase the home’s value

Every once in a while, a listing comes to market that’s so weird and out-there that the photos go viral on social media. It could be something as relatively innocuous as an, um, intimate dungeon in one room, or some rather unusual choices of color or decoration or what-have-you. And you know what, who should anybody be to judge? The whole point of homeownership is to have a placet o call your own and shape into exactly what you want.

The problem arises when sellers insist that their interesting and not very common taste enhances the value of the house. Not only will some sellers refuse to shape their homes a little more closely to buyers’ tastes, but they might also decide to price their home well above neighborhood comps because “it has something none of the neighbors’ homes has!” That’s true, but so is the fact that not every buyer wants a house with a creepy mermaid mural in the bathroom or a stripper pole in the corner of the bedroom.

A job well done is a reason to complain

Unfortunately, you won’t be able to identify this seller until after you’ve done something amazing — sold their home quickly, and possibly above asking price. Even though they made the decision to accept the offer, they might decide later on that you advised them poorly and they could have made even more money if they’d decided to leave it on the market for long. Who knows where people get these ideas?

They can’t agree — with each other

Hopefully, none of your clients will be real-life incarnates of George and Martha from Who’s Afraid of Virginia Woolf, but it’s possible that you might run into a handful who clearly aren’t used to agreeing with one another and expect you to mediate their differences. Maybe one wants to sell quickly while the other is content to wait. Or one likes the idea of reducing the price and the other thinks it’d be better to just take the house off the market. You may have a lot of skills as an agent, but you’re not expected to be a marriage counselor for basic decision-making.

They look for reasons to personally dislike people they don’t know

If your seller suddenly starts to develop animosity toward the buyer before they ever meet face-to-face at the closing table, watch out. Unless the buyers are being the nightmare — it happens! — you may find yourself having to placate the seller and soothe ruffled feathers, or even convince the seller not to drop a nuke on the deal because they got an idea that they couldn’t work with the buyer. You need to be especially careful if sellers begin espousing ideologies and opinions about the buyers that could get you into Fair Housing trouble.

They think they know better than you do

There’s nothing new under the sun, including home sellers who seem to have an idea that they could do your job better than you, in fact, are doing your job. The attitude itself is common enough that you might not want to make it a hill to die on, sad to say — where it becomes a real issue is when your clients completely disregard your advice because they’re confident that they know more than you do. Why? Because that’s when you find yourself in a situation where a client is blaming you for an action they took against your advice.

They micromanage

Just about everybody has had a bad experience with a micromanaging boss who won’t let them do their job, and it’s more than probable you might end up with one of those clients eventually. Maybe they think the listing photos or marketing materials could be better and want to adjust the typeface or ask you to retake the photos. Perhaps they’re nitpicking a word choice in the listing description. Those things are more tolerable than clients who want to micromanage the contract or negotiations, areas where they really should be leaning on your guidance.

They don’t want to compromise

Whether it’s refusing to budge on the price, not wanting to work with buyers who ask about repair credits or other concessions after the inspection, or throwing a temper tantrum if the appraisal comes in below their contract price, a seller who won’t compromise doesn’t give you a lot of room to maneuver as the agent. Maybe you’re really good at getting deals done without wiggle room, but for some agents, this can very reasonably be a reason they don’t want to work with a client again.

They don’t want to spruce up … at all

This one is another flag that might mean the seller is a nightmare, but it could just mean that they aren’t in a financial situation to do much around the house. Usually, though, you can tell the difference between someone who has pride in their home but can’t afford the latest upgrades, and someone who simply doesn’t care that the walls are practically falling down around them. If the seller has the financial means to make necessary repairs but refuses to do it, or won’t negotiate on price even though the place is below the standards for most of the market, then you’re most likely working with someone unreasonable.

They find fault with everything you do

Selling a home can be a very emotional time, and when a seller nitpicks at you or berates you, it’s not something you ever have to put up with — but it’s also at least somewhat understandable sometimes. When a seller can’t help but pick apart everything you do to find fault with it, though, that’s a good sign that this relationship is probably going to be a lot more trouble and stress than it will be worth for you, financially and otherwise.

You aren’t comfortable

We don’t always pay enough attention to the alarm bells that sound in our head when someone dangerous or predatory is around, and hopefully, you’ll never encounter a seller who could fit that description. But … but. Real estate can be a dangerous business, and you won’t do yourself any favors by ignoring your gut instinct and hanging around a client who makes you uncomfortable. If alarm bells start ringing in your head and you get that “get out” feeling, you know what to do — get out.

It’s stressful being a landlord at the best of times, but when the time comes for you to sell your investment property and move on, the stress can feel palpable. You’ve probably spent time getting to know your tenants and have built a relationship with them, and most humans don’t deal with change all that well.

Springing the “guess what, I’m selling your residence out from under you” conversation can feel like a big deal, even if everyone involved knows that isn’t really what’s happening. If you own a home with tenants in it that you want to sell, what do you need to know and address?

You can still sell your house even if there are tenants living in it …

The good news is this: You have the legal right to sell your property, even if there are tenants living there. It’s your house and your decision to make, and if you want to sell it, that is well within your purview.

That said, there’s a good way to go about selling your home with tenants, and there are a lot of ways that generate resentment and a lack of cooperation and that generally are not pleasant or fun for anyone involved. You do have the right to sell your house; your tenants have rights, too. To make this a tolerable process for them — and, frankly, to get the place sold faster and for more money — you’ll need to solicit your tenants’ cooperation.

… But in most states, they can stay through the end of their lease

One of the rights that your tenants have is to stay in the property until the end of their lease. This applies to both month-to-month leases and fixed-term leases for longer periods of time, such as six months or one year.

Selling a rental house with a month-to-month lease is relatively easy; refresh your memory as to the terms of your lease agreement and give your tenants the appropriate notice that you will not be renewing the lease when it ends. This could be anywhere from 30 to 60 days, depending on how your lease is written and what state the property is in.

Selling a rental with a fixed-term lease can be a bit more complicated. It’s possible that your tenants’ lease might not be up for several months, and if you really can’t wait for them to vacate before buying, then you’ll need to work with them throughout the sales process, and they will stay on in their residence after it’s sold.

Would the tenant be interested in buying?

One easy solution to the issue of selling a home with tenants is to ask the tenants if they’d be interested in buying. Not everyone is going to be able to afford to do this, of course, but it’s very possible that your tenants love where they live enough to consider securing a mortgage loan and making you an offer.

If this happens, it’s really a best-case scenario for everybody. You don’t have to go through the hassle of preparing a home for sale, putting it on the market, and handling buyer bids; buyers don’t have to go through the pain of finding a home that works well for them in their price range. Don’t make the mistake of thinking you can take this step without professional help, though; it’s still a good idea to hire an agent to make sure your interests are being represented and protected.

Can you wait until the lease is up?

Depending on how long is left on the lease, you might be able to just wait until it’s up, gives your tenant the appropriate amount of notice that you won’t be renewing the lease and need them to vacate, and then put the home up for sale. Simple! Unfortunately, in some circumstances, the tenant may have more than six months left on the lease, and you may truly need the house to sell as quickly as possible.

If you can’t wait until the lease is up, you’ll need to have a conversation with your tenants about the sale. This should probably be an in-person conversation, followed by a formal letter — but the in-person conversation will give you an idea of what you’ll need to do to incentivize your tenants to be cooperative, which could mean the difference between an immediate sale or a listing that lingers and lingers.

Decide how you’re going to market the property

Most sellers who are trying to offload a rental property have a couple of different options for how to market the home. They can sell it as an investment property — in which case, an established tenant is a distinct plus — or they could sell it as an owner-occupied home. Investors won’t mind at all that the property has a tenant; in fact, they might consider it a reason to buy in and of itself.

You can market the home as both; that’s also an option. There are some traditional buyers who won’t be moving immediately and won’t mind waiting out a lease, so limiting yourself exclusively to investors isn’t necessarily your only possible path forward.

Work with your tenant on appropriate showing times

It’s important to remember that you are the person in this relationship who desires the sale. Your tenants probably have a lot of feelings about it, few of them positive; they are likely anxious about the future, unsure of where they will move or whether they will have to, sad about the loss of their residence, and more. So if you want them to cooperate to the best of their abilities, you will need to make this process as easy as possible for them.

The first thing to do — and possibly the most important — is to ask your tenant about their schedule. When would it be convenient for them to open their residence for showings, and when are the incredibly inconvenient times? Do what you can to limit showings only to the times that tenants have indicated are convenient for them. Buyers who are motivated will be willing to clear their schedules to see a house that might be a fit, so you can feel free to give your tenants some control over the scheduling.

Offer to pay for cleaning, lawn maintenance, or both

Another big pain point for your tenants is going to be keeping their residence looking showing-worthy just in case a buyer wants to stop by. This is difficult enough for sellers who are motivated to offload their own residence, but when you’re a tenant who doesn’t have a choice in the matter and you’re not going to see any financial benefit from your behavior, why would you be inspired to spend almost all your time outside of work keeping up with your house?

One way you can show your tenants that you care about their experience in this process is to help them out by hiring cleaning or lawn maintenance help — or both — to help them keep up with the showings and alleviate some stress. Yes, it’s going to cost you some money, as will a few of these suggestions. But is it better to spend some money upfront and sell the place more quickly, or to pinch your pennies and allow the home to languish on the market for months? At that point, you may as well wait for your tenants to vacate if you’re not willing to do anything to hasten the process.

Provide 24 hours’ notice for showings

Different states have different requirements for how much notice you need to give tenants about showings, but a good rule of thumb that’s acceptable in all states is to provide them at least 24 hours’ notice. Make sure that all buyer’s agents know this is the case, and don’t acquiesce to pleas to squeeze someone in at the last minute. It could be illegal, it will very likely leave a bad taste in your tenant’s mouth, and you could wind up with an uncooperative tenant on your hands as a result.

Arrange for the tenant to leave during showings

Tenants might not be intrusive when possible buyers are walking through the house, but it’s still pretty awkward to try to look at a place with the current occupant present. Talk to your tenants about options for things they can do while buyers come by to look, and do what you can to make those options easy for them. Maybe spending some gift cards to a local coffee shop or brewpub would be welcome ways for them to spend the hour or so they have to vacate the premises?

Send them on a mini-holiday for the open house

Planning on having an open house over the weekend? What will your tenants do during that time? Maybe you can offer them a night or a weekend away in a nice hotel while you host the open house. This is an opportunity for you to get a bunch of buyers in the house at once, especially if the open house is a significant part of the marketing campaign you’ve established with your agent. Do whatever you can to make it as good as you can make it — and as comfortable as possible for your tenants.

Help the tenant find a new place to live

As a landlord, it’s possible that you have more than one property in the area, and it’s also possible that you may have an opening in a residence that would suit your tenant perfectly. If that’s the case, you can absolutely present that offer to your tenant. Ask if they’d like to see the new residence, make time to show them around, and if they agree that it would be a good fit, maybe offer to help them move, too. If there’s a price difference between their current place and the new one, you might be able to do some negotiating or use it as a bargaining chip.

Even if you don’t have any other homes that might be suitable for your tenant, you might know other landlords or property managers in town through your own business. Reach out to them and mine your network to see how you can best situate your tenants. They’ll thank you for it later!

What if the tenant is behind in rent?

In an ideal world, you could ask your tenant for the rent owed, collect it, then sell your property with no further issues. But the world we live in is not ideal, and a tenant who owes rent already isn’t exactly a selling point when you’re trying to offload a rental property. In fact, it’s a liability!

There are a few ways you can tackle this problem. You could tell the tenant you will forgive their outstanding rent if they agree to move out immediately. You could try to put them on a payment plan that will help them get current by the time the sale happens. Or, depending on how far behind they are, you could start the eviction process — which isn’t fast or easy, but if there are no other options, it may be your best one.

Consider ‘cash for keys’

This term refers to a practice of giving tenants money to move out early. Sometimes landlords do this when the tenant is a problem — for example, not paying rent, or antagonizing other neighbors. It’s essentially exactly what it sounds like: You approach the tenant and offer to pay them to leave.

Your tenant doesn’t have to be a problem tenant to use this strategy when you know you want to sell. If you’re pretty sure that your tenants would cause problems in the sale, and you can’t wait for their lease to end, ask if you could pay them one month’s rent and their security deposit, or whatever seems reasonable to you, if they would break their lease and vacate early. You can also offer additional incentives, like paying for a moving company to help them make the move. This might seem counter-intuitive, but if you really need the place sold and you’re out of other options, it can be the best solution to your problem.