How to Navigate the Challenges of Buying and Selling Simultaneously
One of the most common challenges in today’s real estate landscape is successfully buying a replacement property and selling your current home at the same time. Even thinking about this can feel overwhelming but it can be done, as long as you prepare properly and have an experienced agent by your side it can be a smooth process. Let me tell you how to make that happen.
Whether you are downsizing or moving to a larger home it all starts with the strategy. If you need to unlock the equity in your home we start by examining what the actual market value is and the amount of proceeds you can expect to net from the sale. If this isn’t the case I can also help you determine if you can buy first and sell later. We have programs available that will enable you to purchase first, make an offer without contingency, and list your home after you have identified the replacement. Conversely, we can help you walk the fine line of doing everything simultaneously. This is far more common in today’s low inventory marketplace and taking the right approach can ensure you are protected from a contractual standpoint every
step of the way.
How to protect yourself contractually through contingencies.
- If you locate a property prior to selling your current one we protect our clients by inserting a “home sale contingency”. This will allow you to present an offer on a replacement property but provides protection in the event your current home does not close. Should it not get to the closing table you are not bound to purchase the replacement. This can be difficult to navigate but when executed properly it can still be presented in a way that works. The key is having a broker in your corner who knows how to present the dates, deadlines, and language needed to make this appealing to a seller.
- If you are selling your home prior to locating a replacement we can protect our sellers by inserting a “suitable housing contingency”. What this ensures is that if you obtain an offer on your current home unless you are able to locate a replacement within a defined period after offer acceptance you can terminate the sale. Fair warning, this may shrink your pool of eligible buyers. However, if your home is desirable there are plenty of people who do not need immediate occupancy and are happy to wait to let this scenario play out.
- The third contingency that can be used is a specific financing contingency. Simply put this clause, called a “Home Sale/ Home Purchase financing contingency”, will indicate that if you do not qualify for your financing to purchase a replacement property you no longer need to sell. While this is less commonplace it can be used effectively if you have a broker
who has been down this path before.
Often times we can use these three clauses so that you are protected by a “suitable housing contingency” on the front end and a “home sale contingency” on the back end. This means you will be protected from start to finish.
There are several options when it comes to financing a simultaneous purchase and sale. Here are some of the most common practices:
First and foremost whenever you are exploring a home purchase the first step is to talk to a trusted local mortgage advisor. They can tell you whether you are able to purchase another home prior to selling. They will also provide exactly how much you can afford to spend and what the costs involved will be (downpayment + closing costs). If you need a referral for an outstanding lender, contact me for a suggestion.
There are several different ways to source your downpayment on your next home prior to selling. Obviously one of them would be an existing savings account. If the funds are not available consider taking a short-term loan against a 401K or retirement account. Often this can be done interest-free. If those are not an option, we have seen clients take a short-term loan from family and repay them from the proceeds at closing.
Another common practice is to use a home equity line of credit leveraging the existing equity in your current home. This option does take more advanced planning, if you have a large equity position in your home consider obtaining an HLOC prior to beginning your home search and sale. The HLOC can be used for your down payment and paid off upon the successful sale of your current home.
Purchasing a home prior to listing your current one has several benefits. It allows the home to be prepared in a way that will enhance your final value without the stress of vacating for showings or the strain of interrupting your family schedule. This includes but may not be limited to; touch-up painting, refinishing hardwood flooring, deep cleaning, cleaning up the landscaping, cleaning the roof and gutters, pressure washing walkways and patios, or professionally staging the home for optimal viewing.
Here are the 7 keys to buying and selling at the same time
*Here is how to manage this process skillfully if the two transactions must be completed simultaneously (the same day).
1. Know your actual market value & be prepared. This means knowing the realistic price that you can anticipate to obtain at a bare minimum. Currently, most homes in the Portland metro area are selling on average at nearly 102% of the listed price. This means that the price opinion we provide is certainly a great baseline but that in certain scenarios you could reap even more equity from your sale at the closing table. The other key to success is to have your home ready to hit the market. This means pressure washing walkways and patios, cleaning the roof and gutters, touch up painting, de-cluttering, and any other market preparation required to hit the market. The process is much more difficult when you locate your replacement but then have to scramble to get your house on the market. Often we will already have the media package put together on your home in advance: HD quality photos, a 3-D virtual tour, drone photos, video tour, and more to ensure you are ready to list within a day rather than a week. Furthermore, we will be pre-marketing your home to our extensive network of top producing agents who have buyers in the market for your house. That way those people are waiting in the wings as qualified buyers for your home when the time comes.
2. Have your financial ducks in a row. Know your approval amount and have your lender letter ready to go. With most listings selling in the first weekend on the market, you don’t want to have to apply for your financing on a Saturday and jeopardize having a seller not give your offer serious consideration because you cannot attach your lender letter until the lender is back in the office on a Monday. Also, make sure that your lender letter outlines your max purchase amount. Even if you are offering a lesser amount in a competitive marketplace you want to ensure that the seller knows you are well qualified.
3. Once you have steps one and two out of the way you need to complete your must-have criteria as well as a wish list for your next home. The “must-have” boxes must be checked but the “wish list” includes items that won’t deter you from moving but are more “icing on the cake”. If you identify a replacement the key will be finding a seller that is comfortable with a flexible close date. Since there are so many moving parts having an agent in your corner that can lay out realistic timelines, provide the seller with re-assurance your current property is priced effectively, and re-assuring them the deal will close is essential. Often
times in this market the most flexible sellers are the ones that have a home in need of cosmetic updating. This is another area in which I can help you by connecting you with our extensive list of contractors, interior designers, or an architect to ensure you can transform the house into your vision of it. If it doesn’t pencil out, we continue the search.
4. Structuring your offer properly is crucial to compete with noncontingent offers. This means that we will attach your lender letter, your love letter to the seller about the home, and a well-crafted agent cover letter that outlines how we will ensure the transaction gets done. The agent cover letter will include detailed market analysis and comparable sales on your current home to illustrate that in our market it’s likely that the home will sell in the first weekend on the market. It will illustrate to the seller that we will make an immediate price improvement if a contract is not recognized within the initial week. On top of that having an agent that can show that they have nearly 20 years of experience and a proven track record of consistently closing deals if further reassurance that we will make it happen.
5. Don’t make the mistake of trying to get a discount in a competitive marketplace. Chances are if a seller is willing to accept a contingency they are not likely to provide a discount. Otherwise, they would simply wait for another offer to materialize with a more concrete closing timeline. Offer significant earnest money as a show of good faith. Since we will protect you contractually with contingencies if the home does not sell, this money will be returned to you.
6. Get the house listed, since you have already prepared the home typically we can get it listed immediately and with an effective pricing strategy we can try to set an offer deadline for the Monday after it hits the market. Usually, the home only needs to be listed from Thursday-Sunday in order to let the market for your home unfold. We will update the seller of the replacement home that you have accepted an offer but keep contingencies in place on both ends of the deal. That way if your home doesn’t end up closing your earnest money is not at risk.
7. You did it it’s time to close, ensure with your lender that your financing is in place and that the equity from your sale will be available for your new down payment at the day of closing. Be sure that if you are delivering possession on your current home it is empty, professionally cleaned, and ready for final walk-through.