While serving notice to tenants and managing their cooperation throughout the sale process is highly sensitive to timing and personalities, tenanted properties represent an opportunity to attain a fair price on the sale of your asset.
To sell a tenanted property is a complex process that requires a thorough understanding of evolving laws and market conditions.
With more than a thousand rental units under our care, we are often involved in selling tenanted properties. Our Real Estate services branch – LandLord Realty Inc., Brokerage – was originally set up in response to complications arising between the tenant and the owner’s choice of a Realtor. In 25 years of property management, we’ve seen the issues and opportunities first hand.
Advantages of selling while tenanted
Tenant-occupied properties have tenants paying rent every month, which may lessen the urgency to accept an offer early and sell quickly. Any concerns presented by having restricted access to units are mitigated by the type of buyer that a seller can hold out for: one can see the potential in a unit, even when occupied by a tenant. This kind of buyer can look past scuffed walls or lackluster décor to see the investment that can be theirs, and is less likely to walk away when their low-ball offer is not accepted. The “unmotivated seller” holds the high ground in any negotiation.
Managing the tenant
The flip side of an unmotivated seller is, unfortunately, an unmotivated occupant. It’s of course quite reasonable to assume some resistance from someone who has been told they’ll have to find a new home (to say nothing of their having to endure potential buyers invading their space).
While tenants have a great deal of power to disrupt the sale process, we have the capacity to compel difficult tenants to cooperate. It is to everyone’s advantage to walk the fine line to avoid complications in the first place, and that’s where experience with tenancy laws in Ontario is invaluable. The tenants have rights, but also responsibilities.
While one can’t expect realtors to establish a rapport with a tenant in the short span of the listing period, it’s worth noting the value of such a relationship.
In situations where we have a pre-existing relationship with the tenant, we are able to leverage the tenant’s familiarity with us. We might well have shown the tenant their home, and we were certainly there to ensure a trouble-free tenancy. A tenant will typically be more at ease dealing with the familiar face of their property manager than a salesperson they’ve met only in the context of having to leave their home. This could be particularly true if the agent underestimates the sensitivity of a tenant. The tenant’s familiarity with our company ensures we have an easier time accessing the unit to show it, and that the tenant will be more forgiving should a problem arise.
The realtor’s challenge
Vacant properties are easily made to show well, and owner-occupied properties have occupants with a strong motivation to have the property show well. That’s quite different than trying to sell a tenanted property facing the prospect of having to find a new home. Some of the obstacles that a realtor will need to address include:
- staging is out of the question
- pets may impede access
- the walls may be scuffed
- showing times are less flexible
- the tenant may not keep the unit fully tidy
- attractive images for the listing may not be possible to take
- occupant has little motivation to cooperate with the sale process
Tenants are allowed to live their life and neither owners, realtors, nor property managers have any right under the law to interfere with their enjoyment of the premises outside the scope of entering with prospective buyers. A thorough understanding of tenants’ rights and responsibilities ensures that a sale can proceed smoothly.
To successfully sell a tenanted property can be determined as much by how the tenant is managed as by setting the right asking price.
Terminating a tenancy
A tenancy can’t be terminated just because the property is being put up for sale. One ill-advised tactic owners sometimes use is to issue notice to terminate for their “own use”, and then proceed to list the property once the tenant is out. This poses the significant risk of a major fine by the Landlord and Tenant Board.
Alternatively, a tool we sometimes use is to offer the tenant a lump sum to vacate early. This option can give the owner unfettered access to the unit throughout the listing process, allowing staging and showings.
We will typically recommend giving the tenant as much notice as is practical. This allows them time to adjust to the fact that they will have strangers viewing their unit, let alone the idea of looking for a new home. The better the tenant’s expectations are managed, the easier the process will be.
Having managed thousands of properties over the years, it’s second nature to us to have tenants fill out the appropriate forms. Such forms confirm notice to vacate, and protect the seller throughout the sale process. While it may not be top of mind to realtors used to selling vacant or owner-occupied residences, it’s a critical early step to ensure vacant possession.