Real Estate News

May – Real Estate Newsletter

Many American homeowners are trying to pull off a ticklish task this spring: trying to buy a new home while selling their existing residence. If owners are able to buy a new home before selling the old one, they could find themselves in a tough spot. On the other hand, if owners sell before buying a new property, their situation could be even trickier.

To help explain the intricacies of buying-while-selling, consider the case of Sonya Z, an imaginary homeowner who represents the typical American home buyer/seller.

Although her family was upbeat about the pending move, Mrs. Z found herself filled with anxiety. She hoped that she and Mr. Z would be able to find just the right place when their home sells, so the family can make a smooth transition from one place to the next. Fortunately for the Z family, they were working with an experienced real estate agent who knew how to steer clear of the many pit- falls involved in selling one home while buying another.

Two Possible Scenarios

Their agent helped educate Mr. and Mrs. Z about current market conditions, pointing out that she agreed with Jaime Wiebe (a writer for Realtor, com, the website of the National Association of Realtors) who recommends, “Before you start seriously searching for a new home – or put your current home on the market – make sure you have a solid understanding of the housing market in your area – and in the area where you’re planning to buy.”

In particular, “is the market weighted toward buyers or sellers?” she asks. “Only then will you be able to fully strategize ….The best plan of action may differ depending on exactly who has the power.”

Simply stated, a buyers’ market occurs when more homes for sale out number buyers. In this case, buyers usually have the upper hand in negotiations on both price and terms. The sellers’ market is the opposite: With more buyers on the market than homes, the seller is in the driver’s seat.

As it turned out, the Z family was fortunate enough to list their home in a sellers’ market. That meant the Z home would likely sell quickly, at a good price. Yet a quick sale could also present challenges for the family, especially if they had not already pur­chased their new home.

Less Risk, More Hurdles

The “pros and cons” of selling first, buying later is “less financial risk, but more logistical hurdles” according to Brandon Cornett, publisher of Home Buyers Institute. Less financial risk, in this case, means that the sellers will not find themselves saddled with two mortgage payments at the same time, which could happen if they fail to sell the old home around the same time as buying the new one.

By “logistical hurdles,” Cornett refers to the chore of figuring out where to live between the time that the old house sells and the purchase of the new one.

Here’s how the Z family cleared those hurdles:

Reading the local newspaper, Mrs. Z noticed a story mentioning that the average home in her city took two months to sell, more or less. She assumed that she and Mr. Z had enough time to shop for their new home. Then she mentioned the story to her agent, who cautioned her not to rely on the statistic quoted in the article.

Need for a Plan

The agent explained, “Every home, neighborhood, and market is different, so frankly it’s impossible to know, in advance, when your house will sell. It could sell tomorrow, or it might remain unsold for several months, although the latter seems unlikely.”

“In fact,” the agent went on to say, “I recommend that you and Mr. Z do some pre-planning about where you are going to live, in the event that you sell your home before you have picked out and finalized the purchase of a new home for yourself.”

“Well,” said Mr. Z, “we were sort of hoping to open escrow on a new place and schedule the closing of the sale for about the same time that our buyers might be completing their purchase. Wouldn’t that be the best plan?”

Coordinate Buying and Selling?

The agent concurred, “I agree that would be the ideal outcome. But to tell the truth, coordinating the sale of your old house with the purchase of your new one is difficult—really difficult-because there are so many variables on both sides. In any event, you can’t rely on both sales closing at the same time.”

“In that case, what are the options?” asked Mr. Z, “We could always move into my mom’s place for a while,” he suggested. “Then we wouldn’t have to pay rent!” Mrs. Z, meanwhile, sat by silently, the distress visible in her face.

“Those are possible options, to be

HOMEBUYERS LIKE MATTE FINISHES, SOFT FLOORS

“Here are just a few key trends that savvy, sophisticated (homebuyers) will be gravitating toward… in 2016. 1. Matte finishes will slowly replace stainless steel in 2016 and 2017. Don’t worry, they will still blend in with existing appliances such as stainless or black and white. 2. Cushioned flooring. The days of cement flooring are out…. Cork flooring is making a comeback. It now comes in a variety of colors and is much more comfortable to walk on than traditional wood flooring and ceramic tile. 3. Circadian lighting…. It’s designed to sync with your sleep cycle. You’ll be able to set it to change from energizing white light during the day to a warmer, more relaxing orange glow in the evening.” Dani­elle Procopio, Inman News.

sure,” said the agent, “but both those options require moving twice, while putting the furniture into storage. That could be both difficult, costly and exhausting.”

A Right-to-Rent-Back Clause

The agent proposed, “A better idea might be to have a longer escrow or include a clause in your purchase agreement entitling you to rent back the house from the buyers for a certain period, typically 60-90 days.” After that time, she added, “you return possession to the buyer. The intent is to give the seller enough time to either buy a new home or find another suitable place to live.”

“In a seller’s market, buyers are often agreeable to renting back the home to the sellers, because the buyers are primarily interested in locking up the sale, first and foremost. Leave the idea of staying with relatives as a last- choice option in the case that no byer accepts the rent-back clause.”

At this suggestion, Mr. and Mrs. Z both smiled. “Isn’t it nice that we might not have to impose on your mother,” said Mrs. Z pleasantly to her husband.

The Phone Starts Ringing

As it turned out, the Z’s property attracted nearly a dozen visitors during the first open house. By the end of the week, the house was in escrow for a sum above the asking price. On top of that, the grateful buyers even agreed to the lease-back clause!

After all this stress, things worked out well for the family. They found another home they loved.

What If Its a Buyer’s Market?

Imagine, now, that the Zs were selling their home in a buyer’s market.

MILLENNIALS FAVOR THE SUBURBS

“It was only a matter of time. Literally. As millennials grow older, get married, have children, they are seeking out bigger houses and better schools. That means the suburbs. They are also getting tired of paying higher urban rents and watching those rents rise… Just 17 percent of millennials bought homes in urban or central city areas, according to an annual survey by the National Association of Realtors, which sent out a questionnaire last July to roughly 95,000 homebuyers. That urban share came down from 21 percent in the previous survey.” – Diane Olick, CNCBC.

As mentioned above, it’s easier to buy a new home in a buyer’s market, because there are more homes on the market than buyers. Those same conditions, however, generally make it harder to sell your existing home.

For these reasons, experts recommend selling your home first, and then buying, to avoid the burden of paying two mortgages at the same time.

Now Mrs. Z was suffering from an entirely different sort of anxiety: Would the Z family be able to sell their home fast enough to buy a new home and move into it before the start of the next school year? Again, their real estate agent was upfront with the Zs.

“It’s in your best interest to sell this house as quickly as possible,” she said. “While your home is attractive and in good condition, you might consider pricing it a little lower, just to be competitive and attract as many potential buyers as possible for the quicker sale.”

Mr. Z was unhappy to hear this recommendation. He had secretly hoped he would be able to “pull enough out” of the sale for both a down payment and a small fishing boat. He and Mrs. Z quickly exchanged glances. “No boat,” she said with her eyes.

To avoid owning two homes at the same time, the Zs decided to sell their original home before putting an offer on another.

Making a Contingent Offer

One alternative to waiting until the sale of their existing home was completed would be to make an offer.

GLOBAL ECONOMY SOFTENING

“Here’s the mainstream outlook in a nutshell: China will continue to decelerate. The U.S. will continue to outperform its rich-nation peers. With global demand soft, the price of money (interest rates) and the prices of oil and other commodities are likely to remain low. Central bankers Janet Yellen, Mario Draghi, and Haruhiko Kuroda will be in the spotlight as the Federal Reserve attempts to nudge rates higher and the European Central Bank and Bank Of Japan look for ways to stimulate growth.” – Bloomberg on a new home contingent on completing the sale of their original home. “As long as the buyer has not removed that contingency, he is not on the hook (if) his escrow falls apart,” writes Bob Hunt in RealtyTimes.

The real estate agent also advised the Zs not to be offended by low- bail offers. While some offers are too low to be considered, many buyers are simply trying to get a sense of how much wiggle-room may be in the price.

Consider Both Sides of the Deal

If they were obliged to sell their home at a lower price than originally hoped, the Zs could also buy at a lower price than they thought they could. And, that meant more potential upside if homes were appreciating in Z-town, the fictitious city where the Zs live.

In the end, the Zs found a large and attractive home in their target neighborhood. They moved in just a week before school started, and the kids found that the new place was close to the homes of their favorite school mates.

Soft Landing, Happy Ending

Even in a challenging market, the Zs ended up having a good expe­rience of buying-while-selling. “You see, dear,” said Mr. Z to his frazzled spouse. “I told you it would all work out in the end! Don’t you feel better now?”

“Yes, much better,” she said. “Right now, though,” she added, “I think I’m ready for a nap.”

Are you thinking about selling your home while buying another? Before making a decision, call or email. Let’s keep this complicated process as stress-free as possible.