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Tips for when it's time to sell that rental house


Your real estate agent just pounded a "For Sale" sign in the front lawn of your rental property and you're walking hopefully to the door with a prospective client. But when you open the door, you're crestfallen.

Your tenants have left your home in total disarray. Half-read newspapers are strewn across the living room sofa. Dirty dishes are stacked high in the kitchen sink. The toilets seem not to have been cleaned in months. And downstairs, there's a powerful odor left by a black poodle who is scratching and whining in pursuit of her freedom.

"Tenants really don't care about the marketing of your home because they have no vested interest," says Norma Marsho, broker-owner of three RE/MAX Realty offices in Howard County. Indeed, some tenants may actually sabotage the sale of a home -- since its liquidation means only that they'll have to move sooner than they had planned, she explains.

The best approach for a landlord needing to sell a property inhabited by tenants is to tell them about the possibility of sale as early as possible and create incentives to encourage their cooperation, real estate specialists say.

"Prevention is the best cure. You have to handle the situation up front," Ms. Marsho counsels.

Actually, tenants are not always a negative for the property owner who must sell, according to realty specialists. Tenants who have furnished a home well and keep it sparkling can make the property seem more appealing than if it were vacant.

"Some properties show better furnished," Ms. Marsho says. Although a small property can look crowded if it has too much furniture, a medium or large home will typically show better than a vacant home, she says. That's because the presence of furniture gives people a feeling of the home's scale and lets them imagine their own furniture there.

"A lived-in home can give a sense of warmth and family," adds Keith Bisogno, manager of marketing for PHH Homequity, the relocation subsidiary owned by the Hunt Valley-based PHH Corp.

There's also the issue of maintenance. Good tenants will help keep a property in good repair by telling the owner about a problem immediately -- whether it be a plumbing malady or leak BTC in the roof, points out Mark Wilson, sales manager for ERA-Robert Ward Real Estate in Bel Air.

It's not always easy to get tenants to promote the best interests of the homeowner selling a rental property. Real estate specialists make these suggestions:

* Tell your tenants before they sign the lease that the house could be sold.

A standard lease contains language requiring the tenants to provide "reasonable access" to a rental property put up for sale. But Ms. Marsho, the RE/MAX manager, says it's wise to put an addendum to the standard lease spelling out the number of hours each week that the property could be shown to buyers. Adding the addendum and discussing the issue with your tenants at the outset tends to clarify expectations and should help gain you more cooperation when it comes time to market the property.

"As with everything you do, communication is paramount," Ms. Marsho says.

* Offer your tenants the chance to buy your property.

Your tenants have likely developed some feeling of attachment to the rental property and could be interested in purchasing the place, says Mr. Wilson, the Bel Air sales manager.

Even if they lack the wherewithal to make the purchase, they will appreciate your overture as a sign of respect for them.

"It's a warm, fuzzy thing to do and if the tenants buy your house, that could solve a lot of problems for you," Mr. Wilson says.

(And in Baltimore, the law requires that a landlord offer a property for sale to his tenants first, according to Baltimore Neighborhoods, a housing agency.)

* Outline with your tenants specific times when prospective buyers could see the rental unit.

If your tenants are unwilling or unable to buy your property, you'll naturally need to market the place to others. That means showing the house at times acceptable to both your prospects and your tenants.

"You can't expect the tenants to be 100 percent available," Mr. Wilson says. The best thing is to agree at the beginning of the selling process on specific time periods that would suit both owner and tenants and to try to gear your appointments within that schedule.

Gain as much access time as you can. At the minimum, you'll want access for at least an hour per day on weekdays and two hours per day on Saturdays and Sundays, Mr. Wilson recommends.

* Give your tenants incentives to cooperate in the selling process or to leave before the lease expires.

Call it a "moving allowance" or call it a "bonus." Either way, the promise of a payment ranging from $500 to $1,000 upon sale of your home could prove a powerful incentive to gain the cooperation of your tenants in the marketing process, says Mr. Bisogno, the PHH Homequity official.

By the same token, it could be worth the outlay to pay recalcitrant tenants to go away before their lease expires. If your tenants are slovenly or, worse, try to sabotage the sale of your property in order to remain there, you might be better off marketing your house vacant.

* Consider taking a deep discount on the price of a rental unit inhabited by poor tenants.

Under the best of circumstances, rental homes sell at a slight discount off owner-occupied properties because there's no pride of ownership on the part of tenants. Even when a rental unit is in good condition, you can expect it to go for 3 percent to 5 percent less than a comparable home where the owner lives, says Mr. Wilson, the Bel Air sales manager.

"Most everybody understands that a tenant doesn't take as good care of a property as a seller," he says.

The pricing compromise you'll have to make to move a rental property in poor condition that is occupied by untidy or uncooperative tenants will, almost inevitably, be still greater than that on the average tenant-occupied unit.

Still, it can be well worth it to slash your price, cut your losses and sell at the end of your tenants' lease, Mr. Wilson advises.

"There gets to be a point," he observes, "of no return on an investment when you're better off moving on."

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