The San Marino Real Estate Report, as seen weekly in the San Marino Tribune
When a home owner makes the decision to sell their personal residence and purchase a new home, it is important to develop a strategy for how to coordinate the two transactions. In most cases, money from the current home is necessary to fund the new purchase, so the current home must close escrow before the new home can be acquired. The individual can either choose to buy first and try to quickly sell or sell first and try to quickly buy. Some people are natural risk-takers and view the process as an adventure, but others need to take a more conservative approach.
People tend to be more comfortable identifying a replacement property before putting their own home on the market. The fear of selling their home and then having no where to move makes this option more desirable. Also, most people are unwilling to make an extra move to temporary housing in order to allow extra time to search for their dream house.
As wonderful as this strategy feels to people, it can be quite hard to execute. There are two ways to proceed, each which has its own pitfalls.
Write a contingent offer:
If an individual finds a great home that they want to purchase but they have not sold their current home, they could write an offer with a contingency for the sale of their home. By writing it this way, the buyer is asking for a period of time to get their house on the market and sold, without adding the risk of losing their deposit if they cannot accomplish the task.
If the home they want to purchase has been on the market for a long time and the sellers are eager to get it into escrow, a contingent offer might work. Highly desirable and well-priced homes that illicit multiple offers right away are not a great choice for a contingent offer. With several offers to choose from, the seller is not only looking for a great price but also wants the best terms. The addition of another contingency would definitely be a strike against even the highest offer.
Write a non-contingent offer:
In this scenario, the individual would write an offer on a new home and leave out the contingency for the sale of their own home. They would need to write an offer so good that it turns the eye of the seller, because the buyer would still need to disclose that the funds for the purchase are coming from the sale of their personal residence. Although a transaction involving a buyer who is not encumbered by the need to sell a house is more desirable, at the right price, a seller might take a gamble on this type of offer. Even without a contingency for the sale of their home, this type of offers still involves added risk to the seller that the buyers will not be able to close the deal.
Anyone choosing to follow this strategy should expect a high level of stress and pressure. They not only need to accomplish a lot in a short period of time, but they also risk losing their 3% earnest money deposit if they cannot sell their own home and provide the cash needed to close their purchase. The seller who accepts an offer of this sort needs to expect some delays. It is unusual that all the timeframes dove-tail just perfectly, so some patience will be required.
Trying to buy a new home before selling your personal residence is a tricky task. It can be stressful and will likely require some financial sacrifices. By choosing to buy a new home before selling your own, you will be in a weaker bargaining position on both deals.
Next week, I will discuss the options available to people who decide to sell their personal residence before they purchase a new one.