Negotiating a Cash For Keys Agreement
By Adrian Pedraza | Oct 16, 2024
As a landlord, the most pragmatic solution to deal with undesirable tenants or unauthorized occupants in your property would be negotiating for a Cash for Keys agreement. This strategy, though controversial, can be a landlords best bet in getting the property vacant.
Cash for Keys agreement, also called ‘cash for possession’ or ‘keys for cash’ is a common practice in the real estate industry that offers a mutually beneficial solution for landlords and tenants.
In this article, we'll explain what cash for keys agreements are, how they work, and their significance for landlords and property owners. We’ll also address the questions about how much to offer and how to structure the cash for keys agreement.
What is a Cash For Keys Agreement?
This agreement helps expedite the process of reclaiming your property while offering financial assistance to the departing tenant. Learning more about cash for keys and how it works can help you determine when to maximise this method as a landlord.
Cash for Keys is a way for a landlord (or a bank in a foreclosure situation) to convince a tenant to vacate a property in exchange for an agreed-upon sum. This strategy offers a mutually beneficial solution to avoid the eviction process. It involves the tenant voluntarily handing over the keys to the property in exchange for a financial incentive.
Furthermore, the cash for keys squatter deal is an agreement where a property owner offers a squatter an amount of money to vacate the property voluntarily. The goal of the agreement is to avoid the time, expense, and uncertainty of legal eviction proceedings. It also can prevent the squatter from utilizing their squatters rights and taking advantage of the landlord.
Although it may seem counterintuitive, cash for keys is often less expensive than going through a lengthy eviction process. Typically, the amount paid comes with stipulations based on the condition in which the property is left.
Landlords offer these funds to tenants who will be evicted or when they plan to sell the property, while banks typically do this when a home is going to be foreclosed on.
Offering a lump sum of cash instead of pursuing either eviction or foreclosure speeds up the process and saves money for everyone involved. It is often a better rental business decision for landlords, even though it can feel like you are giving money away.
it's a common practice in situations where when tenants can no longer afford the rent or are damaging the property. In other cases, it may be an option when a landlord purchases a new rental property and wants to move on from the existing tenants or occupants of the property.
Is it Legal for Landlords to Use Cash for Keys to Reclaim Their Property From Tenants?
Yes, cash for keys is a mutually agreeable and perfectly legal method that allows landlords to reclaim their property by offering tenants a financial incentive to vacate. This strategy avoids the long and expensive eviction process. It benefits both parties when executed with proper documentation and clear communication.
You can settle for cash for keys so long as you’re not compelling your tenant to take this option and both parties agree to the terms. Most importantly, you must pay gross attention to local and state laws. Laws are constantly changing, and there may be limitations placed on this type of situation in the future.
Negotiating a Cash for Keys Agreement
Both the tenant and landlord need to work together to ensure a mutually beneficial outcome. Here a a few tips that’ll help make the process seamless and successful:
1. Communicate Openly
Establish open and transparent communication between the tenant and landlord from the beginning. Discuss the reasons for the cash for keys agreement and any expectations either party may have. This'll help create a positive negotiation environment.
2. Identify Common Goals and Set Clear Offers
Understanding each other’s needs and motivations will enable you to find a middle ground and reach a mutually beneficial solution. When negotiating, be clear about the offer you are proposing and the benefits it provides to both parties.
3. Consider Fair Compensation
When determining the amount of compensation, consider factors such as the current market value, the tenant’s tenure, and any expenses they may incur due to the relocation. Providing fair and reasonable compensation can help facilitate a smoother negotiation process.
4. Flexibility and Creativity
Be open to flexible solutions and creative alternatives that meet both parties’ needs. Explore options such as providing financial support for relocation expenses, extended move-out periods, or assistance with finding alternative accommodation.
5. Seek Legal Advice
Before finalizing the cash for keys agreement, it’s advisable for both tenants and landlords to seek legal advice. This helps ensure that the agreement is legally binding and protects the rights and interests of both parties involved.
Challenges in Cash for Keys Agreements in California
While cash for keys agreements can provide numerous benefits for both tenants and landlords, potential challenges may arise during the negotiation process.
Disagreements on Settlement Amount
Another potential challenge is when tenants and landlords have differing opinions on the settlement amount. Tenants may feel the amount offered is insufficient, while landlords may believe they are being fair and reasonable.
Legal and Documentation Issues
Cash for keys agreements require proper legal documentation to ensure their validity. Any errors or omissions in the paperwork can lead to challenges or disputes later on.
Non-Compliance with Agreement Terms
Some tenants may fail to comply with the agreed terms of the cash for keys agreement, like not completely vacating the property or leaving it unsatisfactory.
Reluctance To Vacate
One common challenge is when tenants are reluctant to vacate the property, even with a financial incentive. This can be due to attachment to the home or difficulties in finding alternative housing.
Solutions to Cash for Keys Agreement Problems
Clear Agreement Terms
To avoid non-compliance with agreement terms, the cash for keys agreement should clearly outline expectations and obligations for both the tenant and landlord. Including specific timelines and conditions for vacating the property can help reduce misunderstandings.
Download our free Cash for Keys Agreement template to streamline your negotiation process and ensure a smooth, legally sound tenant transition. Perfect for property owners looking for an easy, hassle-free solution
Negotiation and Compromise
When there are disagreements on the settlement amount, both parties should engage in productive negotiations and be willing to compromise. Understanding each other’s perspectives and finding a middle ground will ensure a mutually acceptable settlement.
Open and Transparent Communication
Overcoming reluctance to vacate requires open and empathetic communication between tenants and landlords. Arranging a meeting to discuss concerns and offering support in finding alternative housing options can help facilitate a smoother agreement.
Legal Advice and Documentation Review
Seeking legal advice to draft or review the cash for keys agreement can help ensure compliance with relevant laws and reduce the risk of legal issues in future. Proper documentation can provide clarity and protection for both tenants and landlords. Whether you are a tenant or a landlord, being aware of the legal considerations involved will help ensure a fair and lawful agreement.
5 Common Mistakes With Cash For Keys
Even if you try your best to ensure everything goes as smoothly as possible, things can always come up along the way. These are the top 5 common mistakes that get property owners into problems when attempting to remove tenants from the property.
1. Self-Help Evictions
This is the most common mistake that frustrated and exhausted landlords make. While it is understandable that property owners get upset about being unable to regain control of their rental property, that doesn’t mean that self-help evictions are allowed.
Landlords cannot take matters into their own hands and make the tenants’ lives miserable by doing lock-outs, shutting off the utilities, refusing repairs, or using any other method to keep the tenants from accessing or inhabiting the property.
Not only is it illegal, but the landlord can also be on the hook for fines and have to pay the tenant for spoiled food, wasted utilities, and, in some states, a set dollar amount per day they’re locked out.
You cannot use this method even when the tenant won’t see reason and tries to talk to you about moving out or following the lease rules. Instead, you must file an eviction suit with the court system immediately to legally regain property control.
2. No Harassment
It is illegal to physically or verbally threaten tenants, yell at them, stalk them at work, or harass other family members. No matter how frustrated you may be, always remain professional.
A looming eviction can be emotionally charged for the landlord and the tenant. Try to remove the emotion as much as possible and clearly communicate the situation.
3. Don’t Negotiate Too Much
Sometimes, tenants will attempt to talk you up in the amount, and if you keep agreeing, they may feel like you will negotiate even more.
You can start low and work up to the amount you’re willing to pay so tenants feel they are getting a great deal. Better still, you can start high, hoping the amount will impress them, and stand firm. Just don’t get desperate and start offering amounts you have yet to think through or are not financially worth it.
Negotiating some move-out terms is okay when you’re trying to do a quick cash for keys transfer. For example, you may agree to allow the tenant not to patch holes or repaint rooms when they are moving out on short notice. Alternatively, you can negotiate, but only up to an amount equal to your legal fees for eviction.
However, you want to avoid agreeing to things that will make the situation too expensive or time-consuming. Plan what types of concessions you are willing to make in advance, and stick to that line. Otherwise, you may end up in a more trying situation than a court-led eviction would have been.
4. Keep Transactional Proof
Although it is called “cash for keys,” landlords should always pay via check if possible. That way, you have an official record of the transaction.
If you have negotiated to pay in cash, then make sure you both sign something that records proof of the transaction. Provide the tenant with a receipt and create a copy of it for your records as well.
5. Remember The Deposit
Cash for keys is separate from the tenant’s security deposit. Just because they leave doesn’t mean they forfeit that deposit automatically.
Most states require that you send tenants a written, itemized list of all deductions and any remaining amount. Forgetting this important step, even if the deposit is wholly withheld for the above reasons, could lead to legal action from the former tenant.
Ensure you do a formal inspection and send out the necessary checks and documentation as quickly as possible to prevent potential issues.
Does The Cash For Keys Method Really Work?
When landlords facing a challenging situation first hear about cash for keys, they often feel like it is too good to be true. Why would a tenant who has been causing them grief move out so easily?
The good news is that most tenants who can’t pay rent usually jump at the chance to have cash in hand and avoid a judgment on their records. You know what they say - “Sometimes the juice isn’t worth the squeeze.”
There are some landlords who want to go through with the eviction process so they can get the judgment on the tenant’s record and feel vindicated for the grief they’ve gone through. The idea of paying someone who causes you grief is a hard pill to swallow.
It’s best to take your emotions out of your decision-making and look at it as a business decision. It may feel like you’re losing by offering cash for keys, but your bottom line may be a win. For a more stress-free path, you could just opt to sell your house fast.
FAQs
How Much Do You Get for Cash For Keys?
There is no predetermined amount you will need to give tenants in a cash-for-keys situation, which is one of the most significant variables. The amount that you decide to offer will depend on several factors on the repairs that are likely needed, why you’re asking your tenant to move out, and how much you spend on legal fees.
How Much Would You Spend on Legal Fees?
This amount depends on how much you should offer. Tenants who will be evicted regardless will not need as much to be encouraged to leave, while tenants who can let out their lease may need more encouragement. Ultimately, you’ll have to decide what is a good number for your rental business and see if your tenant agrees. Otherwise, you’ll have to try another option.
Is Cash for Keys Taxable?
That’s dependent on different things. Some of the factors determining how the tenants will need to file this extra income are things that you will not know and are entirely dependent on their tax status. In most situations, the payment will be considered extraordinary rather than rental income, and it should be filed under miscellaneous funds on their tax return. However, for more specific tax questions, the tenant should discuss them with an expert tax preparer.
Is Cash for Keys the Same as a Foreclosure?
No, the two are different. Banks and lenders often offer cash for keys to tenants living in a foreclosed property or homeowners who plan to accept a deed instead of a foreclosure option. In both instances, the bank is trying to get the property into vacant status as quickly as possible so they can resell it now that it is their property.
How Can I Initiate a Cash for Keys Agreement?
You should start the conversation with your tenant or landlord by expressing your interest in reaching a mutually agreed-upon resolution. It is important to communicate openly, negotiate in good faith, and discuss the terms and conditions of the agreement.
Conclusion
If you feel trapped by a frustrating tenant but unwilling to try an eviction at this time, you might benefit from cash for keys. Cash for Keys agreements offer a practical and efficient solution for landlords and tenants in California, providing a way to resolve tenancy issues amicably and avoid the complexities of eviction proceedings.
By understanding the process and following legal guidelines, landlords can navigate these agreements successfully while ensuring a smooth transition for all parties involved. Plus, the cash for keys method is less costly in time and money, leading to favorable outcomes.
This doesn’t mean it will be the right solution for every situation or every landlord, but there’s a good chance you might find a use for it in the future. Better still, to make everything easy, you can sell you home fast to a trusted buyer like The California Homebuyer. We’re the most trusted and reliable cash buyer in California. Contact us today to receive a competitive cash offer for your property!
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Adrian Pedraza is a Southern California native with a passion for residential real estate. Since 2016, Adrian has been actively investing in properties across the region. He founded The California Homebuyer, a company dedicated to offering homeowners a quick cash sale option. Adrian's enthusiasm for exploring the diverse neighborhoods and unique pockets of SoCal has made him a local expert in various markets and real estate trends. He has been featured on CNN, U.S.News, Realtor.com, Newsweek, and more.