If you read my blog last week, you know that buying a house while you are selling your existing home can be tricky. Whether closing on the sale or purchase first, you hope everything will go smoothly; but in case it doesn’t, you need some insurance. I walk my clients through the pros and cons of a variety of strategies that might be useful in reducing risk and managing setbacks. Take a look at a few worth considering:
There are many contingency clauses that are commonly used in real estate transactions. If the home doesn’t appraise for the agreed-upon sales price, for example, the buyer may terminate if an appraisal contingency clause is part of their agreement. Less used, but worth considering, is the sales contingency clause. If you’re unable to sell your current home within a certain time frame, this contingency allows you to cancel your offer on the new home. While this sounds perfect, there is a catch. When the market is hot, sellers many prefer to look for a “sure thing” rather than gamble on whether or not you can sell your home in a timely manner.
Extended Closing on Purchase
This is similar to a contingent offer but without the contingency. If you’ve found a new home and are confident your existing home will sell within a given time frame, you can ask for the closing on the new home to be a few weeks later than the standard 30-45 days. This move does have its drawbacks. The seller may ask for more earnest money, to insure that you are committed to the purchase, and in a competitive market, you might need to boost your offer price to make up for the added flexibility.
If you are selling in a seller’s market, where good homes in your price range are tough to come by, you may be able to ask for a “rent-back” provision. Usually for a period of 60-90 days maximum, a rent-back means you get to stay in your home after it sells. Of course, there’s a cost, either in a reduced sales price or in daily rental to the new owners. And in a buyer’s market, when there is plenty of inventory, your buyers may not want to become your landlord, even temporarily.
Clients who buy a new house before selling their current home might also consider using a short-term bridge loan to cover their down payment expense. The lender will give you a certain amount of money based on the amount of equity you have in your current home so that you “bridge” the money gap between the equity in your current home and the down payment on the new one. This allows you to make a more competitive offer that doesn’t contain a contingency clause. The downside? Bridge loan terms vary widely in cost and conditions. Plus paying two mortgages in addition to a bridge loan while waiting for your existing home to sell can create financial stress.
As a REALTOR®, I am positioned to help my clients understand financing options and identify qualified lenders, as well as help with any negotiations regarding price, terms, date of possession and the inclusion or exclusion of repairs and furnishings or appliances. The Dunlap Real Estate Team guides each client from listing through the closing process, making sure we have dotted every “i” and crossed every “t” so that there are no delays from our side of the table. We are committed to providing detail-oriented service along with carefully considered experience-based guidance to our clients. Let us know if we can help you navigate your next home sale or purchase.