When you want to sell one home and buy another, how do you pull it off?
You have heard of “Time vs Money”. This is more like a “Money vs Stress” decision.
It can be a little nerve-wracking to sell one home and buy another. There are a couple of ways to structure this to avoid having to move twice and to store furniture (which is expensive as well as time consuming). The other alternative is to plan to store furniture and rent while taking your time in locating the new property. I’ll discuss each one.
There are two main ways to do a sell/buy and move once. The first one is to sell the current home first and to purchase the next home with the proceeds of the sale of the first one.
(1A) This can happen with a long close of escrow and buying the next home with a contingency “subject to the successful close of escrow” of the first home. It is possible to do a concurrant close, where both homes record the same day. So if you are shopping for homes and have chosen one to bid on, once your home sells, you can make an offer on the one you like. Typically the home your selling will have a longer escrow – right now our typical escrows are 30 days, so you might structure yours to be 45 or 60 days.
(1B) Another very common way to arrange this is to do a shorter sale on the home you currently own and to have an option to rent back for a period of time. The rentback cannot exceed 60 days because the buyer’s lender won’t permit it. The reason for the restriction is that the lender wants to know it is really going to be owner occupied and not a rental. After 2 months, it’s looking too much like a rental for the lender’s comfort. Anyway, with this plan you can sell your home with a typical 30 day close of escrow, and then opt to rentback for 30-60 days (giving the new owner plenty of notice as to the exact day you will move out – they usually want 30 days). This way, you have the cash in hand to make the purchase and don’t have to write the offer with the extra contingency, which could make a seller nervous. Certainly if you’re in a market in which multiple offers are common, you would not want to write any extra contingencies, so this method might be preferable. Of course there are issues around rent-backs, so it’s not without some consideration.
(2) The other way in which you can move once depends on good equity in the home you currently own. If you have a lot of equity, you can take a Home Equity Line of Credit (called a HELOC) out on the first home, purchase the second home, move into the new home, and then sell the old home after you’re out of it. The advantage of this is that you can stage the home to sell and not have to worry about being 200% clean and pristine at all times. For families with young kids, this is often the way to go. The downside of this is that it’s expensive to carry two mortgages at once (so you need to price the home you’re selling very realistically so the period of holding both is extremely short) and you will need to do some work on the house to get it to sell for a great price. An empty house with barren walls etc. will not show great and will not attract your highest and best price. You can get a professional stager to warm it up with towels, flowers, art, etc. for about a thousand dollars. And you can rent furniture for a few rooms of the house for about $2500 for a couple of months. You may also need to paint, carpet etc. but these types of minor improvements usually pay back many times over. So, moving out first can be expensive (two mortgages, staging costs) but sometimes you will make more money if you are out of the house yourself and it’s staged like a model home. And it’s certainly less stressful. But don’t move out and leave it entirely empty. At a minimum, accessorize the kitchen and baths and place some items throughout the house to warm it up.
Selling one home and buying another and trying to do it all in one move is indeed stressful. Some folks would not do this – it’s just too frightening. Another option does exist:
(3) Rather just sell their current home and buy another all at once, some folks choose to store their furniture and stay in a short term rental (like a Marriott Residence Inn) for a month or two while they locate the next home. This can be a little more expensive than option # 1 above, but it’s less stressful.
In all cases, it is a very good idea to talk to a great lender upfront and to be pre-approved. That way, even if you plan to sell first and then buy, if the right home does happen to come available, you will be in a position to move on it. So keep your options open by talking to a lender and getting pre-approved.
I have had success helping people to do the two-house-juggle many, many times and I’m happy to report that not one of them has ever ended up homeless. In every case where someone sold and then needed to buy (with a long escrow or a rentback), we successfully located the replacement home in the time allotted and did the move on time. Sometimes there’s not much inventory so this can be a challenge. Just recently I was in this situation so when my buyers could not see themselves in any of the homes on the active market, I searched out the expired listings and found one that looked promising. I got the paperwork signed by the owner of that home (a one-party showing agreement) and they agreed that if my clients liked the home, they would hire their own agent (I didn’t want dual agency, I just wanted to get my buyers into a home). My clients did like it, we wrote an offer that was accepted and it worked out fine for all. (March 2006)
Please feel free to call me if you want to discuss any of this. (This is not canned text on the website, but rather I wrote it myself based on my in-the-field experience.)