Move up buyers who must sell an existing home before purchasing the next, have a lot to think about and the process can be a treacherous one. Should you buy first and then sell? How about qualifying for a loan? Do you want to be paying for two mortgages? How long will it take to sell? These are all important points to consider. So what is the best way to go? Well if you are fortunate enough to be able to pay cash for the new purchase without the sale of your existing home, there isn’t nearly as much to be concerned about. However, if you must have the proceeds from your existing home prior to purchasing the next, here are a few caveats:
1) Never make an offer first without your home being at least under contract. Why? This is almost a guarantee that you will pay the highest price for your new home and obtain the lowest price for your existing home. Let’s face it, in a good market, what seller would accept a contingent offer on a home not yet sold? You guessed it…one who is having trouble selling. And how are you as the purchaser going to entice that seller to accept your contingent offer? Well, you’ll most likely have to offer list price! Let’s put ourselves in the shoes of the seller. I bring you an offer on your home and essentially I have to explain that this offer will only work when my client (the Buyer) sells and closes his home. When will that be you ask? Gosh,I don’t know and in some cases it may be a very long time. Excited yet?
Oh, here’s the other side of the coin. When you make any offer, even a contingent one, you do have to establish a closing date. So you make your contingent offer, the Seller accepts, and you now go about frantically selling your home. What do you think you will most likely do when your home is still not sold and that closing date you set up is getting nearer and nearer? Right again…lower your asking price. I have seen some cases where the price gets lowered considerably just to be able to consummate the transaction.
2) Focus on Selling First! Obtaining a realistic market evaluation of your home from a trusted agent is step one. Secondly, spend the time with the lender of your choice to get an accurate assessment of how much you are able to qualify for when purchasing the next property. In fact, make a full loan application…now. Once you have an good idea as to what you will be able to put in your pocket from a sale and what you will need to buy, now you can be looking while you are trying sell. I know, so what if you find your dream home before yours is sold? That is a little tricky. However, there are some points to consider.
a) At least your home is on the market and you are actively trying to find a buyer.
b) You could make a contingent offer allowing yourself a “first right of refusal.” In this scenario, the Seller of your dream home would have the right to continue to market his property for sale, even though you and he have an agreement. In the event he does find someone willing to purchase without a contingency, he would have to give you say 48 hours to either remove your contingency or you would have to withdraw from the deal.
c) You may have encountered a situation where the seller of your dream home needs time before he could move. This obviously would be ideal for you and allow you time to sell.
3) Prepare for a quick offer on your existing home. You get a good offer on your home, and now have nowhere to go! This is a real concern for people. Again, there are a few remedies:
a) You could ask the purchaser of your home for a short term rent back period whereby you have the right to remain in your current home, find a replacement and then move out. One warning here: if the person purchasing your home is obtaining financing, his lender may not want to see you enter into this type of rent back for more than 45 days.
b) You do have some leverage. If you have your home sold and have you money in hand, you no longer have to make a contingent offer on the next property. In fact, you are really in the drivers seat because you can close.. FAST! That may come in handy when dealing with the dream home purchase.
c) I have worked out successful transactions whereby concurrent closings take place the same day. However, I will be the first to warn that this can be particularly hair raising when there are lenders involved. Some lenders just cannot seem to grasp the concept of getting loan documents out in a timely manner and more importantly getting them reviewed quickly once signed. This scenario will always require a very important caveat…you simply can’t have a seller moving out and a buyer moving in the same property on the same day. Provisions have to be made for that.
The key to avoiding “move-up” mistakes can be summed up best I believe by these points: a) plan ahead; b) find out the facts on your existing property; c) don’t put yourself in a position to lose; and d) seek the expertise of an experienced agent that can keep you out of trouble.