We’ve heard it for years now – that it’s a seller’s market. And it’s hard to argue that fact with home prices hitting new nominal highs in many states across the nation, month after month.
If you’re a seller these days, it shouldn’t take long to offload your home for a record price if you sprinkle in a little effort. You know, taking professional photos instead of using an iPhone, and cleaning the place before a showing…flushing the toilet helps.
You might even create a bidding war if you’re lucky. Or perhaps Redfin will designate your home as “Hot.”
In any event, you shouldn’t have any trouble selling your home in 2017 if it’s free of major defects or weirdness. That all sounds pretty great, doesn’t it? But it’s not so simple.
Where Are You Going to Move?
The “greatest challenge” facing home sellers these days is finding another property to buy, this according to a recent survey from online real estate brokerage Redfin.
It topped all other issues, including a seller’s inflated perception of their own home and appraised values falling short. Yes, it’s a seller’s market, but some sellers seem to think their home is worth even more than the market is willing to give it credit for.
And yes, those rapidly rising home prices make it difficult for appraisers to assign a fair market value, without exposing lenders to increased risk.
Still, the biggest obstacle is figuring out where to go next. The very reason that it’s a seller’s market is the reason it’s hard to be a seller – inventory. Yep, the “I” word continues to rear its ugly head.
Sure, you can get an amazing price for your home thanks to the lack of inventory, but that same lack of inventory means there’s a good chance you won’t be able to find a replacement home, and definitely not for a spectacular price.
This is probably even more pronounced in areas that have seen massive price appreciation. If the seller originally purchased their home for say $300,000, and homes in the area now sell for $600,000 or more, the seller might not qualify for such an expensive home.
Yes, they might be able to use the proceeds toward a large down payment, but qualifying for a larger loan amount could still pose a threat.
This lack of inventory also means it’s next to impossible to make a contingent offer, that is, getting a seller to agree to let you sell your old home while buying theirs at the same time.
This generally won’t fly today because the seller can probably find a willing buyer that doesn’t have any sales contingencies.
Buying and Selling a Home at the Same Time
Fortunately, there are some solutions to this age-old problem, though it’s trickier in today’s red hot housing market that doesn’t wait for anyone.
As noted, the contingency method isn’t too practical these days because it is a seller’s market and the seller can probably find someone else to buy their home without all the fuss and uncertainty. However, it’s still worth exploring if you find a house and the sellers are willing to work with you.
Assuming you can afford to carry two mortgage payments, it might be possible to buy a new home before selling your old one. The only issue you might have is the down payment if you lack liquidity.
But it’s possible to put less money down initially, then once you get around to selling your old home, refinance the mortgage on the new home by bringing in cash and lowering the LTV. You could even take out an ARM in the interim to save on monthly payments.
The same Redfin survey mentioned above revealed that buyers are having luck purchasing homes with down payments as low as 3-5%. So you don’t necessarily need 20% to convince the seller and get the job done.
Alternatively, you could ask for a rent-back and rent out your existing home from your buyers until you find a replacement. This will give you access to the equity in your existing home to use for the new home. It will also provide a roof over your head, which is helpful.
If you make a plan the buy and sell at the same time in advance, it might be possible to take out a HELOC on your current home and eventually use the proceeds for down payment on the new home purchase.
A bridge loan can also bridge the gap…you’ve basically got some equity at the ready if/when you find a suitable replacement to your existing home.
There’s also the option of getting a gift to help with the down payment on the new property if you’re lacking in the funds department.
These latter options may make you a more attractive candidate to sellers who don’t want to deal with unreliable contingencies.
It’s difficult enough to get one home purchase to close, and exponentially harder to get two to close around the same time without lots of hiccups.
If you can’t handle the stress, it’s also possible to simply sell your home and then rent a property while you take your time to find your next dream home. You can also move in with in-laws or find another temporary housing solution. Or you can sell and just rent until the next crisis when homes are on sale again!
Buying a Home Before Selling Current One
– Get a HELOC/bridge loan or gift in place for down payment money
– Qualify for both housing payments or make offer contingent on sale of old property
– Or simply buy now and rent your old home to offset existing mortgage payment
Selling Your Home Before Buying a New One
– Put home up for sale contingent on finding a new home to buy
– Or ask for a rent-back and rent from buyers while looking for a home to buy
– Or sell then rent a home/condo or move in with in-laws temporarily