Buyer: obtaining security deposit and pro-rated rent from seller?

Question

Closing day is less than 2 weeks away! This is my wife and I's first RE investment and we could not be more excited! I contacted the sellers agent directly and she has been representing both sides. Not a great experience doing so. But we DID in fact get the deal done because the agent was willing to give up some commission. So, all in all, I can't complain. But I certainly will find my own agent from now on.

This brings me to the issue at hand. dealing with the sellers agent has been a little sticky. So, when I asked the agent about how the deposits (its a duplex w both sides rented)  was going to be transferred, as well as the pro-rated rent considering we close a few days before rent is do, she did say that the deposit will be handed over to the new owner (me) at closing, but seemed irritated about the pro-rated rent and even stated "its only 1 day.." (correction, it will be 4 days between closing and the next rent due, which adds up to $270 of rent)

Im looking for a simple and professional way to handle this. This is our first RE investment, so, I am still learning a lot. I absolutely could be out of line here. But this seems so basic to me.. How have you others handled this in the past? Anything legally binding on either end?

Mike Dymski · Answer

Rent is normally prorated but I would not split hairs over $270 on a purchase if everything else is in order.

Jennifer T. · Answer

Where I live, pro-rated rent and security deposits get turned over to the buyer unless the PA states otherwise.  Even if the PA is silent on the subject.  My title company has always handled it on the HUD statement and I usually don't even mention it one way or the other to the seller or their agent.  If I were you, I'd just go that route and have the title company take care of it.  Because, if it's really NBD and not even worth mentioning, then I don't see the seller being up in arms about it.  Plus, it's "only" 4 days if you all close on schedule.  But what if it takes longer than that?  You want those terms already in place and they ARE normal for when a property is sold with an existing tenant.

There was one exception to that (for me) and it was with an out-of-state wholesaler and I suspect an inexperienced seller/REI.  Nobody had an agent.  It came up with the wholesaler because I assumed the security deposit was one month's rent ($1125) but, turns out, it was only $300 (eyeroll).  Because, his words, "you know how it is with S8 tenants, you can't get a full month's security deposit."  Hah!  Apparently I don't know "how it is" because I always insist and get a full month's security deposit from S8 tenants, but I digress.

So the wholesaler says something like, "Man!  The seller was worried you were going to be like this with the SD and pro-rated rent.  She really wants to keep things simple."  It is simple but, whatever.  I used this to my advantage.  I agreed to forego the SD and pro-rated rent being turned over to me.  If she would forego my paying the pro-rated property taxes.  He agreed and offhandedly said, "Okay."  But I got the impression he didn't know what I was talking about.  I think in most places property taxes are paid "back".  However, in Orleans Parish it's paid "forward".  So normally the buyer pays the seller at closing for the pro-rated taxes from the closing date to the end of the year.

It wasn't a huge difference.  But I came out ahead about $150.  And had to convince and assure my title company that this is what the seller wanted also and what we had agreed to, lol.  Because it was so outside the norm!

Theresa Harris · Answer

@Gray Diffee  If you are closing Aug 31, I wouldn't worry about the rent for the day as you're likely closing at noon on the 31st, so you are talking about 12 hours worth of rent.  You definitely need to make sure the tenants know that you will be receiving the rent for Sept and how they should pay it.

Jeff Willis · Answer

1st. You learned the hard way is using the seller's agent. It is a conflict of interest and there is no way your bests interests were represented. Major conflict of interest.

Your purchase contract should spell out that security deposits transfer and prorated rent from the date of close. After the close, it is your money, not the sellers, period. I don't care if it is one day, it is your money!

Michael Noto · Answer

@Gray Diffee You attorney will handle adjustments for money you should be credited for security deposits and prorated rent.

Have you gotten copies of the leases from the seller for you and your attorney to review? If not, get those ASAP because if not you are taking the word of the seller for what the rent is and what the security deposits are.

On top of the leases I would have the seller sign an assignment of leases doc which further confirms the amount of rent being paid per month, if it is actually being paid (are tenants current), and any and all deposits the seller is currently holding. Last thing you want is there to be confusion on what the monthly rent is or how much in security you are supposed to be given. Both can cause headaches down the line with the tenants if not handled properly now.

Buyer: obtaining security deposit and pro-rated rent from seller?

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