How to Sell a Property with a Tenant Living in It

How to Sell a Property with a Tenant Living in It

This primarily occurs with single-family homes and duplexes or fourplexes. However, it can be a problem with large complexes, as well, if the showing and sale process is handled with no regard to tenants.

The reason it becomes a problem is that you, as the seller of the property, are dealing with two separate customers, the tenant and the prospective buyer, each of whom may have conflicting needs and wants. To each you need to provide good customer service.

A subscriber recently wrote asking me: “How do I show and sell the multiplexes with- out scaring away my tenants? I have long-term leases with most of them, but I don’t want to hassle them or even make them aware that I am selling their property, if possible.”

What happens is that tenants see the property is going to be sold, get upset, become uncooperative and possibly even move out. They seem to think that you selling the property will automatically mean they will have to move anyway, so they do it on their schedule rather than yours. People, as a rule, are more comfortable with the way things are rather than the unknown. If your tenants are not moving out anyway, chances are they will be at least a little nervous if you put their home on the market.

What follows are some ideas for getting a property sold without upsetting your current customers.

Multifamily properties (more than four units)

1. No “For Sale” sign is necessary on the property, even though it doesn’t hurt. The sign could have the effect of agitating tenants. Instead use other advertising techniques. If your property is listed with a Realtor, agent-to-agent advertising, the Multiple Listing Service and other advertising will provide the necessary exposure.

2. If it wouldn’t be a burden or affect your cap rate too much, you can keep a display or vacant unit open for inspection by prospective buyers. However, buyers of apartment houses don’t usually expect to see the interiors of the units until they have an accepted offer. So there is no need to show the property before you have a written offer that you have accepted. Make sure the buyer understands that he or she can write the offer “Subject to interior inspection.”

3. If you choose not to use the “subject to. . .” system, qualify buyers before you show the property. Find out from the prospective buyer if he or she actually can and would buy the property if it suits his or her needs. Too often you get tire kickers or people who just attended a “no- money-down” seminar or listened to a set of Carleton Sheets tapes and don’t quite understand the concept. So they call everybody who is selling a property for a showing and then write an offer that there’s no way you will accept. Find out in advance what your “buyer’s” situation is before you bother your tenants.

4. Have a complete Profit and Loss statement on the property ready to show any qualified buyer. That could help him or her decide if he or she needs to see the property. If the numbers will work, have them write an offer and/or arrange for a showing and disrupt your tenants. Otherwise, spare your tenants and yourself the trouble of a showing that probably won’t result in a sale.

5. Send a letter to each of the tenants whom you want to keep saying some- thing like the following:

Dear valued tenant [use your tenant’s actual name],

We have put the property where you are living on the market. We are writing this letter to assure you that we want to make the sale process as easy on you, our valued customer and ten- ant, as possible.

To that end, we will avoid showing your home to anyone but buyers from whom we have an offer to buy the property. Even then, we will give you adequate notice that we are going to show your home to that potential buyer.

The buyer of this apartment complex will be an investor, who wants to keep good tenants living in it. Since you are one of our valued tenants, we hope this letter will reassure you that we and the new buyer intend to dis- rupt your life as little as possible.

If you have any questions, please call.

Two- to Four-Units

1. A “For Sale” sign is a good idea though not necessary. It gives investors, and people in the neighborhood who might want to be investors, notice that the property is for sale. The sign will be disruptive to your tenants, but with the appropriate letter, you may be able to allay their fears.

2. Just as you would for the multiunit properties, qualify your buyers. Here that is even more important, because you will get calls from even more unqualified prospects. If you are going to list your property with a Realtor, do not hire a Realtor who will want to show the property to anybody who wants to see it. Make sure that the Realtor puts in the listing form that “property will be shown to prequalified buyers only.” Too often, Realtors, who apparently don’t have any- thing better to do than show properties to people who can’t buy a painted rock, will call your tenants constantly for showings to people who have no chance of being able to buy the property.

This process does not have to be intrusive and does not entail a lengthy preapproval by a lender, though that doesn’t hurt. What you do want is just basic information about whether the prospective buyer is a legitimate buyer or just a looker.

3. Consider compensating your tenants for easy showings. The Landlord-Tenant Laws in many states either permit that specifically or allow you to make agreements with tenants that are somewhat outside the usual rules for showing properties. Normally you would have to allow 24 to 48 hours before you can get access to a property, but you might pay your tenant for every showing he or she allows without waiting the required time. The amount is something you would have to work out with your tenant.

4. Avoid requiring buyers to write offers subject to interior inspection. Many will simply pass on using their time on something that may not pan out.

5. Be prepared to open the books with a Profit and Loss statement before the buyer writes an offer.

Single-family Homes

This type of property is the most difficult to sell with a tenant living in it. The tenant is understandably nervous, because more than half the time the buyer will want to move into the property, thus requiring the tenant to move.

1. Put up a “For Sale” sign. No sign—no sale. Something on the order of 40 percent of all calls on single-family homes for sale come from yard signs.

2. Just as with the two-to-four-unit properties, see if you can arrange to compensate the tenant for allowing showings.

3. If it is likely that an investor will buy the property, assure the tenant that he probably won’t have to move.

4. Don’t require a “subject to interior inspection” clause in the sales agreement. You will eliminate better than half your potential buyers.

5. Qualify your buyers before you show the property and bother your tenants.

6. Important tip: Use someone impersonating a buyer to see the property, especially if you are using a Realtor to sell it. Often tenants will tell potential buyers all kinds of lies about problems with the building to drive them off.

I had an experience once where a tenant somehow created a drip in the ceiling to show buyers when they came through so the buyers would think there was a major problem with the roof. The tenants added their own special touches to the effect that “this has been going on for a year and the landlord won’t do anything about it.”

The phony buyer will report back to you if the tenant is discouraging potential buyers by lying about the property. If he is, evict him immediately. You might also mention your option of suing him for restraint of trade. Maybe the tenant would win the suit, but the expense of hiring a lawyer and going through all the legal hassles would most likely bankrupt the tenant. Chances are he will move out immediately. Yes, it will cost you money to have a vacant property, but you will never sell it with that tenant living there.

Usually single-family rentals sell best when they are vacant. Keep that in mind when you put one on the market.

Selling a property with a tenant living in it can be a challenge. No matter what you do, you will have at least a few problems. But using some of these ideas, you can make it easier and get more for your property.