The Dangers of Handshake Deals in Real Estate: Why Verbal Agreements Cost Landlords Thousands

By PropsManager Team · Legal & Compliance · Mar 19, 2025

"We don't need a contract — I trust you." I've heard those words more times than I can count, and every single time, they've ended badly. Sometimes it's a $200 dispute over a late fee. Other times it's a $14,000 eviction battle that drags on for eight months. The common thread? Somebody thought a handshake was good enough.

Look, I get it. When you're sitting across from a tenant who seems perfectly reasonable — maybe they're a friend of a friend, or they've got a firm grip and an honest face — pulling out a stack of paperwork feels almost rude. It feels like you're saying, "I don't trust you." But here's the thing: paperwork isn't about trust. It's about clarity. And in real estate, clarity is worth its weight in gold.

Why Handshake Deals Still Happen in Real Estate

You'd think in 2025, with every legal resource available at our fingertips, verbal agreements would be extinct. They're not. A 2023 survey by the National Association of Residential Property Managers found that roughly 28% of independent landlords had made at least one significant verbal agreement with a tenant in the past year. That number jumps to 41% for landlords managing fewer than five units.

Why? A few reasons.

The "Nice Guy" Trap

Small-scale landlords often develop personal relationships with tenants. You see them at the mailbox. Their kids wave at you. When they ask, "Hey, can my sister stay for a couple weeks while she gets back on her feet?" — saying "Sure, let me draft an amendment to the lease" feels absurd. So you nod. You shake on it. And three months later, the sister is still there, she's got mail coming to the address, and in some states, she now has tenant rights.

The Speed Factor

Side agreements happen fast. The tenant calls about a broken dishwasher. You say, "I'll knock $50 off this month's rent instead of replacing it." Done deal, right? Until the tenant deducts $50 every month going forward because they "thought that's what you meant."

Cultural Expectations

In some communities, a verbal agreement carries the same weight as a written contract. That's admirable from a moral standpoint. But morals don't hold up in housing court. The judge doesn't care that you looked each other in the eye.

The Statute of Frauds: Why the Law Is Not on Your Side

Here's where it gets legally serious. Almost every state in the U.S. has some version of the Statute of Frauds — a law that's been around since 1677, originally from English common law. The core principle is simple: certain contracts must be in writing to be enforceable. And real estate transactions sit right at the top of that list.

This means:

• Lease agreements over one year are generally unenforceable if only verbal
• Agreements to sell property must be in writing
• Modifications to existing leases should be documented in writing
• Promises regarding security deposits need written terms

The Statute of Frauds doesn't mean verbal agreements are illegal. It means they're essentially useless when things go wrong. You can't enforce what you can't prove. And "he said, she said" is not evidence — it's a headache.

Real Dollar Amounts at Stake

Let me put some numbers on this. The average eviction in the United States costs a landlord between $3,500 and $10,000, according to TransUnion data. That factors in lost rent, legal fees, court costs, and unit turnover. Now imagine going through that process without a written lease to back up your case.

I spoke with a landlord in Phoenix who agreed verbally to let a tenant pay rent bi-weekly instead of monthly. When the tenant started falling behind — paying every three weeks, then once a month but half the amount — the landlord had no documentation of the original agreement. The tenant argued in court that the landlord had agreed to a reduced rent amount. Without any paper trail, the judge sided with the tenant. Total loss: $4,800 in forgiven rent plus $2,200 in legal fees.

Seven thousand dollars because of a handshake.

The Most Common Handshake Deal Disasters

I've been around property management long enough to see patterns. These are the verbal agreements that blow up most often.

1. "You Can Pay Me Next Week"

This one's practically universal. The tenant's short on rent. You're trying to be reasonable. You say, "Just get it to me by Friday." But Friday comes and goes. Then Monday. Then next Friday. And suddenly you're two months behind with no late fees charged, no written payment plan, and a tenant who's learned that deadlines are suggestions.

What should happen: A written payment agreement specifying exact dates and amounts, with consequences for non-compliance. Even a text message that says, "Confirming: balance of $1,200 due by March 15th with $50 late fee. Please reply to confirm." That simple exchange gives you documentation.

2. "I'll Fix That Soon"

A tenant reports a leaky faucet. You say you'll handle it. Three weeks later, you still haven't gotten around to it. The tenant calls a plumber, pays $350, and deducts it from rent. Were they within their rights? In many states — absolutely yes, if they gave you reasonable notice and you failed to act. But without a written record of when they reported it and when you committed to fixing it, you're arguing in the dark.

3. "My Cousin Is Moving In for a Bit"

This is the one that keeps landlords up at night. A temporary guest becomes a permanent resident. There's no background check, no lease addendum, no additional security deposit. And now you've got an unauthorized occupant who might have legal tenant protections depending on how long they've been there.

In California, someone who's occupied a unit for more than 30 days — even without a lease — can be considered a tenant. That means a full formal eviction process to remove them. We're talking 60 to 90 days minimum, plus legal costs.

4. "Don't Worry About the Pet Deposit"

You meet a tenant's well-behaved golden retriever and say, "Ah, don't worry about the pet deposit." Fast forward six months: the carpet's destroyed, there's scratching on every door frame, and the yard looks like a minefield. Replacement cost? Easily $2,500 to $4,000. And you waived the $300 pet deposit because the dog seemed nice.

5. "We Agreed on a Lower Rent"

Rent reduction agreements made verbally are incredibly dangerous. Maybe you offered a temporary discount during COVID, or you agreed to lower rent in exchange for the tenant handling yard work. Without documentation, the tenant may argue the reduction is permanent. Good luck proving otherwise.

Handshake Deals vs. Written Agreements: A Comparison

That last row is what gets me. People skip written agreements to save time. But signing a quick addendum takes maybe ten minutes. Fighting in court over a verbal agreement? That's weeks of your life you're never getting back.

How to Eliminate Handshake Deals From Your Process

Knowing handshake deals are dangerous is one thing. Actually breaking the habit is another. Here's a practical framework that works.

Create Templates for Everything

You don't need to draft a new document every time something changes. Build a library of templates:

• Payment plan agreement — for when tenants need flexibility
• Lease modification addendum — for any change to original terms
• Guest/occupant authorization — for temporary or permanent additions
• Maintenance acknowledgment — confirming repair requests and timelines
• Pet addendum — terms, deposits, and damage liability
• Rent adjustment agreement — temporary or permanent changes with clear dates

With PropsManager's document management features, you can store all these templates digitally, send them for electronic signature, and keep everything in one searchable system. No more digging through filing cabinets or scrolling through old text messages.

Follow the "If It Matters, It's Written" Rule

Adopt this as your operating principle: if a conversation with a tenant involves money, timelines, permissions, or responsibilities, it gets documented. Period. Even if it's just a follow-up email.

Here's a quick format that works:

Hi [Tenant Name],

Just confirming what we discussed today:

• [Specific agreement point 1]
• [Specific agreement point 2]
• [Timeline/deadline]

Please reply "confirmed" so we're both on the same page.

Thanks, [Your name]

That email takes 90 seconds to write. And it could save you thousands.

Use Property Management Software

Modern tools make documentation almost automatic. When a tenant submits a maintenance request through a platform like PropsManager, there's a timestamped record. When rent is paid online, there's a receipt. When a lease is signed digitally, both parties get a copy instantly.

The landlords who get burned by handshake deals are almost always the ones running everything on paper, memory, and good faith. Switching to a digital system doesn't make you less personable — it makes you more professional.

Train Yourself to Pause

The handshake deal usually happens in the moment. A tenant catches you off guard with a request, and you answer before thinking it through. Train yourself to say: "That sounds reasonable — let me put something in writing and get it to you by tomorrow."

Nobody has ever been offended by a landlord who takes things seriously. In fact, most good tenants prefer it. They want to know exactly what's expected, too.

When a Verbal Agreement Might Actually Be Binding

Full transparency: there are narrow circumstances where verbal agreements in real estate can be enforceable. Courts sometimes uphold them under the doctrine of "partial performance" — meaning if both parties have already acted on the agreement in significant ways (money changed hands, someone moved in, improvements were made), a court might enforce the verbal terms.

But relying on this is like driving without insurance because you're a careful driver. Sure, maybe nothing happens. But when it does, you're fully exposed.

Month-to-month tenancies are another gray area. In many states, a verbal month-to-month lease is technically valid for periods under one year. But "valid" and "practical" are two different things. Even if it's legal, you still have zero documentation of rent amounts, rules, deposits, or responsibilities. It's a recipe for conflict.

The Emotional Cost Nobody Talks About

Financial losses get all the attention. But handshake deals also destroy relationships — which is ironic, since avoiding paperwork is usually about preserving them.

I've seen longtime friendships end over verbal rental agreements. A landlord rents to a childhood friend, keeps everything informal because "we don't need contracts between us," and within a year, they're not speaking. The friend felt taken advantage of. The landlord felt disrespected. Both are convinced they're right. And neither has any documentation to settle the dispute.

Written agreements actually protect relationships. When expectations are clear from day one, there's nothing to argue about. The contract is the bad guy, not you. "I'd love to help, but the lease says..." is a lot easier than "I know I said... but I meant..."

A Documentation Checklist for Landlords

Use this checklist to make sure every interaction is properly documented:

• Signed lease agreement before move-in (never after)
• All lease modifications in writing with both signatures
• Payment plans documented with specific dates and amounts
• Maintenance requests logged with timestamps
• Inspection reports with photos and tenant signatures
• Pet agreements with deposit amounts and liability terms
• Guest/occupant policies clearly stated and acknowledged
• Rent adjustment terms with start and end dates
• Move-in and move-out condition reports with photos
• All financial transactions recorded with receipts
• Email confirmations for any verbal discussions about terms
• Security deposit terms and deduction policies in writing

If you're checking fewer than eight of these boxes, you've got gaps that a handshake deal could slip through. PropsManager's all-in-one platform handles most of this automatically — from digital lease generation to maintenance tracking to rent collection receipts. It's worth checking out if you're still managing things manually.

What to Do If You're Already in a Verbal Agreement

Don't panic. You can usually fix it. Here's the approach:

Step 1: Write down everything you remember about the agreement — dates, amounts, terms, what was said.

Step 2: Send a written summary to the other party. Frame it positively: "I want to make sure we're both protected, so I'm putting our agreement in writing."

Step 3: Ask them to sign it or confirm in writing (email or text counts).

Step 4: If they refuse to confirm, that tells you something important about where this relationship is headed. Consult a local attorney.

Step 5: Going forward, document everything. Use a tool like PropsManager to centralize all your tenant communications, lease documents, and financial records in one place.

The goal isn't to be adversarial. It's to be clear. Most reasonable people appreciate clarity.

Explore More PropsManager Resources

Looking for the right property management software? Check out our in-depth guides:

• Compare Property Management Software — See how PropsManager stacks up against Buildium, AppFolio, Rent Manager, and Propertyware.
• Software for Small Landlords — Built for landlords managing 1–50 units without the enterprise price tag.
• AI-Powered Property Management — Discover how automation can save you 5–10 hours per week.
• Solutions for Property Managers — Scale from 50 to 500+ units without scaling your costs.

Frequently Asked Questions

Are verbal lease agreements legal?

In many states, verbal lease agreements are technically legal for terms under one year. However, "legal" doesn't mean "smart." Even where verbal leases are permitted, they offer virtually no protection in disputes. You can't enforce terms you can't prove existed. The Statute of Frauds in most jurisdictions requires real estate agreements exceeding one year to be in writing, and almost all industry experts strongly recommend written leases regardless of duration.

What should I do if a tenant claims we had a verbal agreement I don't remember?

Stay calm and stick to the facts. Review any text messages, emails, or communication logs for evidence of what was actually discussed. If you use property management software, check the system's records. Respond in writing, stating what you recall and referencing any documented communications. If the dispute escalates, consult a real estate attorney. Going forward, adopt a strict policy of confirming all conversations in writing within 24 hours.

Can I convert a handshake deal into a written agreement after the fact?

Absolutely, and you should. Draft a written summary of the terms both parties agreed to, include the date the original verbal agreement was made, and specify the terms going forward. Have both parties sign it. Most tenants won't object — in fact, many will appreciate having clear documentation. If a tenant refuses to sign a written version of a supposed verbal agreement, that's a major red flag that their understanding of the deal may differ from yours.

How do I handle a tenant who says "we don't need paperwork"?

Be direct but friendly. Explain that written agreements protect both parties equally — not just the landlord. You might say something like: "I know it feels like a lot of paperwork, but I've learned the hard way that putting things in writing prevents misunderstandings down the road. It protects you just as much as it protects me." If they continue to resist, stand firm. A tenant who refuses to document agreements is a tenant who may later deny those agreements existed.

What's the cheapest way to document agreements with tenants?

You don't need a lawyer for every interaction. A simple email or text message confirming an agreement is legally admissible in most courts. For lease addendums and formal changes, free templates are widely available online. The most cost-effective solution for ongoing documentation is a property management platform like PropsManager, which automates lease tracking, rent receipts, maintenance logs, and tenant communications — often for less than $15 per unit per month. That's cheap insurance against a $7,000 dispute.

Stop Shaking Hands. Start Signing Documents.

Every experienced landlord has at least one handshake deal horror story. The ones who thrive are the ones who learned from it and never made the same mistake twice.

The real estate business rewards clarity, consistency, and documentation. It punishes assumptions, informality, and "we'll figure it out later." If you take nothing else from this article, take this: the five minutes you spend writing something down today could save you five months of legal headaches tomorrow.

Ready to eliminate handshake deals from your property management process? PropsManager gives you digital leases, automated documentation, tenant communication logs, and a complete paper trail for every property you manage. See our pricing or request a demo to find an approach that fits your portfolio.

Your handshake should be a greeting — not a contract.