Simultaneous/Consecutive Home Transactions
Selling one home and buying another are frequently linked activities. Click here or on the ‘play’ button below for the audio version of this presentation about how to minimize the bother and maximize your effectiveness when simultaneously home buying and home selling.
We’ll also examine options to help decide if simultaneous or consecutive real estate transactions may be best for you.
The singular act of buying or selling a home is often the foremost concern of many. Whichever immediate task you may be considering, it’s common to have twice the activity anticipated, but in two steps. That’s because home buyers often have a home to sell…and home sellers are frequently seeking a home to buy. So what’s the best way to navigate this potential real estate quagmire without getting entangled in a morass of stress and needless extra costs?
To begin, it helps to examine three common dual home sale/home purchase options:
- Selling your existing house first, then buying the next house.
- Buying the next house first, then selling your existing house.
- Simultaneously moving from your existing house to your next house.
Your challenges, benefits and results will largely depend upon which of these three decisions you settle upon. Here are three quick takeaways for these three usual options.
Option #1. Selling your existing house first, then buying the next house
This option usually requires a ‘double move.’ Yet one advantage of this approach is that you won’t have double house payments. One disadvantage is that you may have to move twice. Another benefit of this ‘selling first’ approach can include negotiating with strength in the purchase of your next home. That’s because your purchase needn’t be contingent upon the sale or closing of your sold home. As a result, you are seen as a ‘cash in fist’ buyer, or at the very least, a buyer who is considerably more likely to qualify for a home purchase, given that you ostensibly now have access to the equity in your now-sold home.
Option #2. Buying the next house first, then selling your existing house
When first buying a house, then selling yours, one advantage is that you know where you’ll be moving. The reduced stress of ‘knowing where you’ll land’ is empowering.
Unless you’re a cash buyer, you’ll likely need to qualify with a lender. And if you have an existing loan in place on the house you’ll be selling, this may mean you need to qualify for two loans, your current home loan and the loan on the house you’re buying.
As long as your current home sells in a timely manner, added financial obligations can be minimized. For more information, see the below discussion titled ‘A Bridge Too Far?’
Option #3. Simultaneously moving from your existing house to your next house
This situation is very common. Provided your activities are thought out, well-executed and contingencies are in place for protection, it’s also one of the more affordable options.
Think far ahead and shoot for impeccable timing in order to make your move the smoothest possible. In order to have sufficient time to move out soon after closing on your current home’s transaction, you will need to locate your next home, write an accepted offer, have the home inspection and if you’re getting a home loan, likely an appraisal…all before you close on the purchase and can actually move in.
One advantage of this approach is that you won’t have double house payments. You also know where you will be landing, and you won’t likely have to move twice. One disadvantage is that unless your timing is good, stress can kick and make you feel squeezed. Ensure some ‘cushion’ to allow for emergencies, like delays with appraisals, inspections and repairs.
That’s one challenge of going this route; It’s complicated by not knowing with precision the timeline of certain key activities. That’s because while home inspections can usually be completed within a set time frame, like 10-14 business days, other requirements like appraisals, can take much longer, with less certainty of the completion date. On top of that, most transactions involve two appraisals, one on the house you’re selling and another on the house you’re buying. If you plan on a simultaneous sale/purchase, huddle up with your Realtor to create a well planned timeline, then build in some extra breathing room, as necessary.
A Bridge Too Far?
One way to do purchase a house without first selling your existing home is with what’s called a ‘bridge loan.’ This is effectively a loan against the equity on your existing home. There are plenty of added details, but for the sake of simplicity, just understand that if you use a bridge loan to buy your next home, until your current home is sold, you will likely have double house payments. So if your current home doesn’t sell in a timely manner, hopefully the squeeze on your wallet won’t be more stressful than if you were to have simply sold your existing home first.
Tools of the Trade
To accomplish the job of simultaneously buying and selling homes, among the most common protective tools is called a contingency. Consider contingencies as akin to safety goggles. They’re designed to prevent a mishap, only in this case, the mishap could be losing your earnest money deposit.
Earnest money is usually a certain dollar figure placed on deposit as a sign a buyer is earnest, and later applied to the home purchase. This helps convince sellers that a buyer is serious enough to take their property off the market and earnest money essentially helps to ‘hold’ a property for a buyer. Earnest money is not usually the total down payment, although it can be applied as part of the down payment. Earnest money is important to homesellers, because without it, a buyer could otherwise tie up the seller’s property with virtually no obligation.
A large part of contingencies relate to a buyer keeping their earnest money, or the initial deposit showing the buyer is earnest in proceeding to closing on a home sale. If a homebuyer does not have a sufficient contingency in place during a home sale, forfeiture of a buyer’s earnest money becomes possible. It’s not terribly common, but it can and does sometimes happen.
Types of Contingencies
Home inspection contingencies provide buyers with the right to have a house inspected for a variety of conditions, all within a specified time frame. Another common contingency is the loan contingency, so if for some reason a lender does not approve a buyer or the property for a home loan, the earnest money deposit is returned to the buyer. Buyers have lost out on qualifying for a home loan because they went out and bought a car during the home purchasing process, thereby disrupting their loan ratios.
The Reality of Earnest Money Deposit Risk
As long as appropriate contingencies are in place and they’re followed in a time-conscious manner, your earnest money deposit is very safe. But along with your Realtor, it’s important to keep an eye on your contingency timelines to ensure you’re protected.
Buying And/Or Selling?
Use the form below to contact Certified Realty for a FREE consultation. Founded in 1950, Certified Realty is still local and family-owned. So whether your real estate situation involves dual homebuying and homeselling, or if you simply have questions about our current Oregon real estate market, Certified Realty can help.