Selling tenant-occupied properties can be lucrative, especially when buildings are inhabited by multiple renting families. You can save your buyers the trouble of searching for renters and set them up with steady rental income streams from the start.
But tenants need their privacy, and few prefer to have strangers in their space. This begs the question: can you sell your tenant-occupied property without disrupting your renters’ lives?
For the smoothest, fastest, and easiest process for everyone involved, auctioning is the way to go. The auction process avoids surprise visits from potential buyers and schedules exactly when they will come to view the property. For the renter, auctioning lessens the stress of being constantly available and having to keep the house spick-and-span at all times.
In this article, we’ll explain how the auction process works and what sellers need to know.
Before selling your property at auction, you should arrange a few things to ensure a healthy relationship with your tenant. Your tenants need to know what to expect and that you honor their rights.
First, check your lease agreement. For example, the lease agreement could provide the tenants with the right of first refusal. This means you can’t put your property up for auction before giving your tenants a chance to buy.
If there’s no such clause or the tenant declines purchase, you’ll want to know what the lease states about repair and maintenance policies. You’ll also need to know if it concerns a month-to-month, annual, or two-year lease; who pays utilities: buyer or tenant; and whether there are any annual rent escalations.
Second, you’ll want to look at other jurisdictionally required documents—for example, lead certificates—that can influence the value of the property.
Once you’ve cleared up these things, you’re ready to put your property up for auction.
The traditional home-buying process can be disruptive to tenants. With auctioning, though, only a few visits are necessary during the entire process.
Quality images help reduce the need for buyers to physically inspect the property.
Before putting your property up for auction, your auctioneer will need to access the property to take marketing photos. During the marketing and auction process, buyers can rely on the pictures and the lease to make their purchase decision. Meanwhile, the tenants can remain undisturbed.
If the tenants agree, we recommend organizing a guided tour that all interested buyers can join. A good auctioneer will organize the tour for you and advertise it well in advance so the tenant has several weeks’ notice.
Typically, guided tours take about one hour. They differ from open-house sessions because buyers are escorted through the property instead of having unrestricted access to explore it on their own.
Another advantage of guided tours is that they start at specific times. When potential buyers are invited to join a tour at noon, it begins at twelve sharp. Interested parties will need to arrive on time to view the property.
Tours might take just half an hour in the case of single-family houses. On the other hand, an apartment building with twenty units might take a full hour. Either way, a guided tour is significantly less disruptive to tenants than an open house or multiple unplanned visits from potential buyers.
When a property has an offer, buyers will often schedule a visit to inspect the home more closely before closing the purchase. Typically, an appraiser will also visit the property around this time to estimate its value.
Overall, the auctioning process usually requires a total of up to four visits spread over two to four weeks of marketing and forty-five to sixty days of closing. This causes minimal disruption to your tenants and ensures the smoothest possible transition to the new property owners. To learn more about the steps of the auction selling process, see our easy guide.
Selling your tenant-occupied property comes with more caveats than selling a vacant property. It’s important to navigate the process in a way that protects the privacy and legal rights of your tenants.
Buyers should be aware that they have to honor the terms of the lease agreement.
Many people think the lease is between the tenant and the property owner. In reality, the lease runs with the property. Because buyers take over the lease as is, they need to know exactly what they’ll be assuming when stepping into your shoes.
The most important thing to remember while preparing all the necessary documentation is the tenants’ privacy.
It’s crucial that the real estate agent blur any identifying details in images. Photos should not contain any information that accidentally discloses who the tenant is. Think of large pictures on the wall or name plates beside the door.
Your agent must redact leases scrupulously, blocking out details like names, emergency contact information, phone numbers, social security numbers, and driver’s license information.
Circumstances can arise in which personal information must be disclosed; for example, the buyer’s lender or the title company doing the closing might request an unredacted copy of the lease. For the security of your tenants, never give out any unredacted copies of a lease until after a sale closes.
Selling your rental property can be a stressful experience. At Alex Cooper, auctioning leased property makes up more than half our business, and we’ve closed an estimated 20,000 sales since 1924. Over the years, we’ve developed the smoothest possible process for rental property buyers and sellers alike so your transaction is fast and easy.
Are you selling in the Maryland, Washington, DC, Delaware, and Virginia regions and need help deciding whether to put your property up for auction? Please feel free to contact us.