Here’s the Million Dollar Question I get a lot. We know we can sell our home in this hot market, but “Where will we go”? Too many would-be sellers resign themselves to staying put because they are fearful that their own home will sell fast but they won’t find a replacement home to move into. That prospect of “being homeless” seems real and fear causes a lot of inaction which contributes to the housing shortage we find ourselves in today.
Since about 2014, the real estate market has recovered and the rising economic tide has lifted most homes above the indebtedness level to reveal a little more equity every year and created a very strong seller’s market. Compare that to 2006 when the bottom fell out and houses were seriously underwater. The market favored the Buyers back then, but the buyers weren’t buying because they were fearful. Okay, so the tables have turned. When we look back, most of us wish we had bought homes when the prices were so low. Hindsight annoys our sensibilities, doesn’t it? And maybe it should. It lends a perspective that sometimes fear isn’t always rational.
So let’s review what your options are when you’re wanting to take advantage of the Strong Seller’s market, but you don’t want to be “homeless”…
Option #1 Stipulate a contingency to find a replacement property
Usually, contingencies are found on the Buyer’s side of the equation. The Buyers have a contingency to inspect the home, and get an appraisal and a loan approval (if financing) before purchasing. That gives the Buyer the ability to cancel the contract for reasons related to the contingencies. With the Seller contingency to find a replacement property, the Sellers have a legal way to cancel the contract if they don’t find a suitable home. Sounds good, right?
Pros: It gives you time to find your next home and get into contract. Cons: It limits the number of Buyers willing to consider your home and limiting the Buyers, limits the price in many cases. It also may cause longer on-market time to get into contract because you have to find that Buyer willing to be held hostage to you looking for a home in this competitive market. They get it. They’re doing it too!
Option #2 Opt for a longer close --60 days in Escrow.
You can let an escrow go any length of time though usually the escrow length is fashioned around how long it takes to research and get a clear title, and ensure the terms and conditions of the contract are met while setting up the exchange of funds. Pros: You’re buying time to find your next home. Cons: Anything can happen as the time stretches out. What if your Buyer gets bored waiting and goes shopping for a house full of furniture before it closes? It’s simple. It won’t. It probably won’t close if the Buyer goes on a spending spree. It happens. New flooring, a new car, décor…are all recorded unhappy endings to an escrow.
Option #3 Move in with family
If your family lives in the area, sometimes you can finagle a short stay with your adult children or your in-laws while you put your household belongings in short term storage. Pros: You are in possession of the cash from the sale of your home which means that you won’t be a contingent Buyer. It’s probably not going to cost you too much in terms of dollars. Cons: Depending on the family, it might cost you something in terms of emotional distress!
Option #4 Prepare your home for sale and coordinate two closings and a move on the same date
Believe it or not, this is still common. In parallel, you prepare your home to go on the market while starting to look for your next dream home. If your home is priced right and your agent expects it will sell fast, you put it on the market as soon as replacement home is found. Pros: It’s a strong option if you’ve organized everything ahead of time to ensure that there’s a plan to have your home market-ready, to plan for packing and moving, allowing for any fixes that may need to be done while at the same time meeting the timeline of purchasing. It can be stressful and you’ll want to get a checklist. A good agent can help. Cons: Now you are a contingent Buyer and you aren’t as strong of an offer if you’re competing.
Option #5 Qualify and purchase the second home without selling the first…yet
There are different variations of a theme on this one. You may want to eventually sell your first home or rent it, but in any case, you will qualify to have both homes at the same time. Sometimes, you’ll have enough equity in the first home to just take a loan out to purchase the second home outright. Pros: You aren’t contingent when you have the money in hand though you would still have a contingency if you were dependent on a home equity loan in order for the loan to go through. Cons: There will be loan costs that you will incur that you wouldn’t if you used the proceeds of one sale to buy the other. If you are renting out the property, you will usually need to have a tenant in place to qualify.
Option #6 Rent an interim home
“Ack! I don’t want to move twice!” gasps the Seller. You will move twice and it’s not impossible to find a short term rental and believe me, it’s really not awful. Pros: You are in possession of the cash from the sale of your home! You are now not a contingent buyer. Cons: You will need to put your household contents in storage and there is stress of moving twice.
Option 7: Rent Back
To rent back is a nice alternative and a common option in today’s market. Usually the Seller will rent back at the Buyer’s PITI (their mortgage payment) though that is entirely negotiable with a good agent. Pros: You can buy yourself a week or two and be enriched with the proceeds from your house which will help pay for moving expenses. Cons: You become the renter in your own former home.
Breathe easy. There are solutions to almost every sticky wicket. Remember that it’s usually in retrospect that we realize that we should have or could have done something better. If your lifestyle shifts and you find yourself worrying about what you’d do if you sold, find a good Realtor who will listen to your concerns and will help you walk through the pros and cons of your ideas and will help you craft a plan for when and how to make the move now or in the future.