Tenant Or Sale – It’s A Choice

By: Wojciech Kic

There are a number of techniques to successfully sell a house.When showing an owner occupied house, real estate agents typically ask their clients to leave during the showings. Furniture is staged for the best visual effect, soft music reverberates in the air, and the bread machine is left on to let the buyers feel right at home as soon as they enter.

Most buyers see right through the manipulation of these maneuvers.They respond with stealth of their own: an immediate offer . . . below the market price.The buyers properly react to the lack of confidence communicated by the seller that the property can handle the market and sell for the top price all on its own.

When selling a rental property, real estate sales agents borrow lessons from selling an owner occupied property. Properties are usually listed for sale when still occupied by the tenant. But staging a tenant occupied property creates difficulty for the listing agent.Tenants have no reason to cooperate in the sales process.Why should they?They have no equity interest in the property they reside in; and a discount on the rent to cooperate is some thing they see as beyond their job descriptions as tenants.

On the contrary, if the tenant is interested in the long-term occupancy, undermining the sales process may be in their best interest. Removing the “For Sale” sign, keeping the house untidy, and re-keying the locks are common maneuvers. A tenant’s favorite stalling technique is to convince the seller to be allowed at all showings.The excuse?They are eager to help and the landlord easily accepts this.

A tenant’s presence at the showings creates even more sale killing opportunities.A slight delay in opening the door, an apprehensive nod here but not there and a blocked driveway work its magic with buyers. Buyers understand that this tenant will be a formidable opponent in the future who will not easily work with them as the new owners.The expected offers, even for a competitively priced property, are nowhere in sight.

Thus, while an owner occupied property sells, albeit at a discount, the real estate agent’s self interest in completing the sale is by and large fulfilled. But when actively attempting to sell a tenant occupied property, the sales process hits a snag.The cage the agent finds himself in is a difficult one to get out of; because in the early pursuit of the listing, the difficulty of obtaining a tenant’s cooperation was altogether overlooked.

Naturally, the agent looks for a solution. Since the property was accepted for listing with the tenant in it, to admit now to the property owner the blunder of it would reveal the futility of the initial cause. Instead, before blaming a tenant, the sales agent will blame the environment.

“The house is in poor shape,” the agent argues.An agent’s retreat finds the tenant’s salient support. How did the property condition deteriorate so fast between the listing appointment and today? The answer services both – the property manager did it!

Sales agents undertake an unprofitable endeavor and expose property owners to extreme risks when accepting a listing for a tenant occupied property.The sale of a tenant occupied property is filled with obstacles that are difficult to cure. After a due diligence process, the buyer, a future homeowner, or an investor alike will insist on a closing only after the present tenant moves out. But moving the tenant out . . . precludes the closing. Why? The buyers realize that the previously made offer (when the house was still tenant occupied) was too high.The cost of a tenant’s departure is viewed in terms of the cost of vacancy because of the property’s sudden abhorrent condition. With the cost of remodeling looming on the horizon, the buyer’s remorse causes the buyer to abandon interest in buying the property.

For the tenant who shames the landlord into regret about terminating the lease, peaceful posses- sion never had more meaning.Without the restraints imposed by the property manager, the tenant can now write her own ticket.The first order of business is the suspension of sales activity.Without the management fee, and suddenly a model tenant in hand, the property owner’s desire to sell the property vanishes.The empowered tenant now knows that the owner will never undertake the same risk again.The excessively long occupancy of the property by the tenant at below the market rent, and perhaps even the acquisition of it below the market value, seals the property owner’s fate.

What is the solution for the landlord when the need to sell a property arises? To begin with, the landlord must know in advance that an unplanned sale of a tenant occupied property will bring about a liquidation price. How then to maximize the resale value of the property? Conclude the business of landlording and list the property for sale when it becomes vacant again.

Leave a Reply

Back to Blog