The San Marino Real Estate Report, as seen weekly in the San Marino Tribune
Last week, I discussed coordinating the purchase of a new home with the sale of a current residence. Because in most cases the money from the current home is necessary to fund a new purchase, it can be tricky to figure out a way to make both transactions work. The individual can either choose to buy first and quickly sell or sell first and quickly buy. Our Greater Pasadena real estate market is brisk, which makes the complexities of trading properties even more pronounced.
Part I of this series focused on the home owner who decides to identify a replacement property before putting their own home on the market. This appeals to most people, because they fear the prospect of selling their home and then not being able to find a suitable home to purchase.
Scary and counter-intuitive as it may seem, the best strategy for most individuals is to sell their home first, before making an offer on a new property. With this option, the individual is able to focus first on optimizing the sale of their own home, without the stress and distraction of another concurrent escrow. This scenario allows the homeowner to be more aggressive with negotiations and better enables them to handle all of the necessary work and strain involved with selling a home. Because the home owner does not have a strict timetable to adhere to, they will also have greater freedom to choose the very best offer.
It is a Realtor’s job to understand the local market, however it still can be difficult to predict how a home will be received by the current pool of buyers. An academic analysis of past sales is extremely helpful in determining a list price, but ultimately the true value of a home is what someone is willing to pay for it. Only after the property is fully exposed to the buyer pool, an offer is negotiated and accepted, and the home goes through the inspection process that a seller can get an realistic idea of their proceeds from the sale. The amount of money the owner takes out of the sale of their home will determine what they can afford for the next purchase. Also, with cash in the bank, they will be in a better position to aggressively offer on a new home.
For individuals who choose to go this route, there are two possible options for bridging the gap between sale and purchase:
Lease the property back from the buyers
With this option, the property closes escrow, the money and title change hands, then the owner remains in the home for an additional period of time as a renter. The previous owner/tenant pays a monthly rent to the new owner and usually continues to handle all of the utilities and maintenance on the property (pool, garden, etc.) This option provides the seller additional time to find a new home and enables them to continue to enjoy the comforts of home. All buyers are not willing to provide a lease-back period. If this is one of the aims of the sale, it is important to encourage multiple people to offer on the house. With a multiple offer situation, the seller will have the best chance of getting a great price AND the opportunity to lease back the property.
Move into temporary housing
This idea is not usually high on people’s list, because it involves the work and strain of an additional move. Also, most temporary housing is found in apartment buildings, which involves a radical change in lifestyle and living space. This option is particularly difficult for families with young children, who are used to having plenty of outdoor space for play. People who like to walk on the wild side might enjoy a brief reprieve from home ownership and the chance to live an urban lifestyle. This option also provides the most flexibility for individuals as they look for a new home. As an added benefit, it is often possible to extend the period of the lease If the new home requires extensive renovations.
Selling your home before making an offer on a new property is a bit like jumping off a cliff, but it is a reliable way to manage the process and optimize your bottom line.