How much does a sitting tenant devalue a property?

How much does a sitting tenant devalue a property?

If you’re a landlord looking to offload some real estate, it can be tough to know what to expect from a property sale. This is a home you’ve invested your time, energy, and money in, possibly over many years, and it’s natural to want a fair deal when you sign on the dotted line.

But while selling a home can be tricky at the best of times, a sitting tenant can make the process a bit more complicated. After all, most buyers are looking to buy a home for themselves — not someone else’s home. So, how do you sell a house with a sitting tenant? And, will a sitting tenant devalue a property? Let’s get into it.

Do sitting tenants devalue a property?

Typically, yes — but the question of “how much” doesn’t have such a straightforward answer. How much a sitting tenant might devalue a property is tangled up in what the demand is for “buy to let” properties in your area. The market for this kind of property is far smaller than that of aspiring homeowners or buyers looking to develop a property. The value will also be affected by what kind of tenancy agreement the sitting tenants at the property have. Let’s take a look at some different scenarios:

  • A sitting tenant under an assured shorthold tenancy (with a fixed end date) might be seen as an inconvenience to buyers, but one that will inevitably move out and leave the property vacant.
  • A sitting tenant under a periodic tenancy can be evicted at any time, so the property could even be vacant before the final sale goes through.
  • A sitting tenant under an assured or regulated tenancy is a different matter. These tenants often have the right to remain at the property indefinitely and that’s a commitment a new landlord would need to take on.

As a general guide, selling a property with a sitting tenant under a temporary tenancy agreement, like an assured shorthold or periodic tenancy, could devalue your property by 20 - 25%. However, selling a property with a sitting tenant under a tenancy agreement that won’t budge, like an assured tenancy, could devalue your property by as much as 30 - 40%.

Ultimately, the numbers will move up and down depending on where your property is and what the market looks like there. Maybe there’s a hoard of prospective landlords hammering down the doors of every buy to let home in your area — here’s hoping. There are also plenty of features that can add value back into a property, check out: ‘What adds value to a house’.

Can a sitting tenant buy the property?

Yes, and actually, this might be the best place to start. By offering your tenants “first refusal” (the chance to buy the property before it goes on the market) you could avoid any estate agent fees, house showings, and get a sale through much quicker. Because your tenants are already settled in the property, there’s also more chance they’ll be cooperative — plus, they might even save money each month as a mortgage is likely to be more forgiving than paying monthly rent.

Selling a house with a sitting tenant

If your sitting tenant isn’t willing or able to take your property off your hands, there are a couple of other routes you can go down. Each one comes with its pros and cons and really, it will depend on how quickly you want the paperwork drawn up and the property off your hands.

These are your options:

  • Sell your property via an estate agent — ideally one with experience of selling properties with sitting tenants.
  • Put your property up for auction at an auction house.
  • Sell your property to a home buying company.

Selling your property via an estate agent is going to give you the most control of all these options. Your estate agent will help you set a fair asking price and they’ll handle the sale using their experience and know-how of the market. It’s going to be a slow process though — from finding a buyer willing to take on a sitting tenant, to the average 3 - 6 months it takes to complete any sale. You’ll need to play a waiting game for this one.

Selling via auction can be pretty thrilling, but there’s a good amount of risk involved too. Properties are called out one by one while buyers raise their hands to make bids. You can set what’s known as a “reserve sale price” (meaning your property can’t be sold for less), but if you’re unsatisfied with how much it sells for beyond this, there’s no opportunity to pull out of the sale. On the plus side, landlords do tend to visit auctions to build their property portfolio — but keep in mind, they’ll be looking for a bargain.

Selling your property via a home buying company is going to get you the quickest results but at a significantly reduced price. It’s good news for a sitting tenant — these companies will continue on your landlord duties seamlessly. But you might need to prepare to accept far less than your property is worth. On the plus side, you’ll save on estate agent, valuation, and solicitor’s fees if you go down this route.

Buying a house with a sitting tenant

So let’s switch this around — is buying a property with existing tenants in the UK a good idea? Well, while there are a couple of things to bear in mind, it could actually be a clever, savvy-shopper move. Think of it this way: you’ll be getting a house or flat for cheaper, the majority of sitting tenants will eventually move out, and the property will be back at full market value as soon as they’re out.

The only problems you might face are those lifetime tenants under assured or regulated tenancies, and getting help to buy. Unfortunately, you might find lenders are unwilling to help finance a property with sitting tenants — that’s because the process to evict them later down the line can be complicated and expensive. That said, the market changes all the time and as lenders compete against one another, you might have more luck finding a willing lender in the future. To find out more about getting help to buy, why not visit our: ‘First time buyer mortgage guide’.

A few final tips…

Buyers and sellers are a bit like puzzle pieces — for some buyers, a sitting tenant might be just what they’re looking for, while for others, it’s a big red flag. Selling a house with a sitting tenant might be a little more difficult, but finding the right buyer isn’t impossible. It takes all sorts, as they say.

Fancy learning more about sitting tenants and their rights? Check out: ‘What is a sitting tenant’.

If you’re looking to up the value of your property, why not take a look at: ‘Renovating a house on a budget’.