Selling house to tenants?

cloo

I let my tenant of seven years know last night that I intendto put the house on the market and that I would be open to offers from her andher husband. Her initial response suggests that them buying the house may be apossibility, although we won’t be discussing in detail for a few weeks as shehas a dissertation to write by the end of the month. I plan to get the housevalued in early February, then sit down with them and discuss the options.

The house is mortgage free, so it forms the majority of thedeposit for our next home so I can’t offer substantial discount, as a good saleprice seems more of a priority than a convenient sale. But I guess there ispotentially quite significant value on a number of levels to sell to thetenant. For me the main advantage is that, as we have two properties to sell inorder to move, it could speed things up. Our intention, if not selling to thetenant, is to get the sale of the rental house through or nearly through beforeplacing our flat on the market to avoid the nightmare of a multiple chain.However, my tenant buying would be a pretty sure bet, as they have anespecially strong motivation for going through with it, so it might mean wewould market our flat at the same time with some confidence, thus moving a fewmonths earlier.

Obviously, I could drop 1% or so off market price for aprivate sale, and anything reasonable for work that needs doing (the bathroom’sprobably due a replacement, and the kitchen worktop, though I think the rest ofthe kitchen is sound). But in our position would we be better to hold out fortop whack from a buyer or maybe save time (and perhaps consequently money) byselling to the tenant, who probably won’t get so near the asking price? Andwhat questions do we need to ask ourselves?

I’m estimating we’ll get a valuation of £285-295k and it’sin an area of London which seems to have a very hot market right now – friends wholive there say there are a lot of viewings every time something goes on sale. I have no idea as yet as to what sort of offer the tenants may be able to make, though I gave her a ballpark figure.

PeteW

From what I've heard, London is in its own little bubble at the moment - people queuing up outside houses for viewing, going as soon as they're put on the market and for above the listed price.

I suspect you'd get a better price by going to market than by selling privately.

Johnandabby

What is the situation in terms of any rental agreement with the current tenants, as any sensible open market purchaser is going to want vacant possession before exchange of contracts?

You'll need to bear this in mind in terms of timescales

somethingcorporate

EA fees will be more than your 1% discount, factor in not having to pay those if you sell to your tenant.

Given the market at the moment down there I'd stick it on the market anyway and let it go to the highest bidder.

DaftyDuck

somethingcorporate wrote: »

EA fees will be more than your 1% discount, factor in not having to pay those if you sell to your tenant.

Given the market at the moment down there I'd stick it on the market anyway and let it go to the highest bidder.

Agree - but disagree... You'll probably get the higher price by selling on the open market, as sc suggests. However, in order to get that price, you'll almost certainly have to sell it tenant-free. So, you'll go through the hassle of evicting them (peeing them off in a right-royal fashion so they won't be biddiing), and then you'll have an effective void until the sale is completed... which even in London will add up to maybe three months rent. Possibly much more, even in a hot market. So, if you sell to the current tenants, there'll be a benefit to you there as well. Don't forget to factor that in.

G_M

How is the tenancy managed? Do you use a letting agent? If so, read your contract as many LA contracts have a clause to cover precisely this scenario - the 'buyer' (tenant) was introduced by the agent so the agent can claim a fee!

I have heard I think of these clauses being challenged as 'unfair terms' but I do not know the outcome I'm afraid.

cloo

Thanks for thoughts, everyone.

The management is done entirely by me. I'm aware the tenants will need to be out in order to complete sale to anyone else, so I'm allowing the time for that; if they don't want/aren't able to buy, I'll be serving 2 months' notice by their Feb rent date, with expectation to get on market late April and have made them aware of this.

We have a very good relationship and I think they're fairly well set up financially, so I don't expect them to make difficulties about vacating the house, but I know I must be aware of it as a possibility!

jamesd

A few years ago my landlord of about that duration put the place up for sale. I checked the market and agreed to buy another place before the landlord had even got around to discussing whether I might want to buy. Tenants in a good financial situation have plenty of options. Best to keep them informed as early as possible and remember that they do have options if you want the relatively easy sale. Avoiding selling costs might provide you with one easy way to make it a little better deal for them without decreasing your own gain.

1981trouble

Compare their offer with the following to get a more accurate idea of how much discount to offer -

Agent fees would likely be 1.5%.

However many months with no rental income (even with an immediate sale it would realistically be 3 months before completion, I personally would factor in 6 months as a minimum).

Increase in costs for the property whilst empty (utilities etc).

Costs for improving property after tenant leaves - basic cleaning and painting right through to refurb if it is not left in a good condition.

Will they leave? Will you have to go through courts to remove them? By the time you include all of those costs it could be iro of £1k if you need to do the full process.

If I was a tenant I would be expecting a lot more than 1% discount based on the above!
You would also be able to negotiate about the tenancy deposit if required.

cloo

Interesting. I hadn’t thought about it in terms of rentvoid, though to be honest, the rent is not money that I have anticipated goinginto the deposit for our next place, IYSWIM, so I’m not sure how much of aconsideration that is. When I lose the rental income, the upshot is that myhusband’s going to have to start paying more into the bills account!

G_M

cloo wrote: »

.....I'll be serving 2 months' notice by their Feb rent date, ....

No need to align the notice with either the rent date or (as you probobly mean) the tenancy date, unless you want to.

You can serve a S21(1)(b) at any time giving two calendar months notice.

Ending/Renewing an AST

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