This article is 99% a chapter from my book, with slight edits: “Get the Best Deal When Selling Your Home in Silicon Valley”, co-authored with Ken Deshaies, pub Dec 2004. Link to purchase the book on Amazon – or just read various chapters on this site.
Related article on this site:
When you want to sell one home and buy another, how do you pull it off?
It is sometimes difficult to balance selling your Silicon Valley home while trying to buy a new home. The timing is often hard to gauge and your decision will often be affected by whether you are in a buyer’s or seller’s market. Should you wait until you have a contract before you start looking? And if you wait too long, could you face a period of “homelessness”? Don’t panic. Like all other aspects of buying and selling real estate, planning is everything. There are a couple of viable approaches to this dilemma. Most importantly, make a backup plan for what you will do if things do not go as planned.
Right now, an increasingly popular way to “move up” is to take an equity line of credit on your current home, locate your move-up home and purchase it, and then sell your first home quickly. The upside is that you won’t be homeless. The downside is that you will carry two homes for a while—and that’s expensive! It also puts you in a position of needing to sell your first home quickly, which is not to your advantage. Most of the time, a better approach is to sell your first home leaving enough time in the contract (either in escrow or with a rent-back option) to locate the move-up property. With the second scenario, you may have to move twice if it’s a tough buying market (hot seller’s market), but you won’t have to carry two mortgages at once. Your choices should depend on your time frame and your budget. Some people do simply plan to move twice – get the first residence sold, move into temporary housing, and then purchase the next home with cash in hand.
In general, we recommend waiting to look seriously for your new home until you are under contract with a buyer, for several reasons. First, if you find a new home before you sell your current one you could be faced with two mortgages, which few of us can really afford—not to mention that the burden could affect the financing of your new home. Although you can use the equity in one home to finance the other, many banks will charge you a higher rate and you will have to refinance as soon as your house is sold. This is a costly approach.
Second, if the idea of two mortgages is unrealistic for your financial situation, you could get panicked and unnecessarily sell below-market. In the end this could cost you much more than the price of interim housing. Although you could ask the seller of the home you have your heart set on to make the purchase contingent on the sale of your current home, most sellers are unwilling to agree to a seller’s contingency for the sale of their home, due to the high risk it carries. This contingency could be particularly difficult to get in a hot housing market. And if your house remains unoccupied, you could pay substantially higher insurance rates, because vacant homes have a much higher risk of vandalism and arson.
Another option is to rent your house until it sells, but selling a tenant occupied home can be challenging. Renters nearly always take worse care of a home, so it never “shows” as well, and buyers are reluctant to deal with the possibility of having to evict someone if the tenant refuses to leave after the sale. Additionally, your lease with them might put restrictions on showing your home (state law provides them 48 hours notice, but even then might not be enough in some cases). Bottom line: the harder it is to show your home, the less traffic you’re going to receive and ultimately, the worse price you are likely to get.
It really is best to sell first and have a game plan if you don’t find something right away. Although potential “double moves” are expensive, you can try to lease back your sold house for a short period of time, say 60 days, or put your belongings in storage and stay with friends or relatives. If you do lease your home back after you have sold it, keep in mind that 60 days is usually the limit due. Beyond that, the buyer’s lender will consider the home non-owner occupied and will charge a higher interest rate. And, of course, you can rent some form of short-term housing. If you sell to an all-cash buyer, though, there are no such constraints.
Since your Realtor® knows your needs best, they can often be a very good source for helping you to find short-term housing, especially if you have children or pets. Although these choices may seem daunting or expensive, if you plan ahead they may save you the anxiety of owning two homes.
Another rule of thumb to follow is to buy first when prices are heading up, and sell first when they are heading down. That way you are in the best position to get a good deal in the market. Like we’ve said before, planning is the key to making a smooth purchase or sale of property.
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mary (at) popehandy.com
Another article by me on this topic on another of my blogs:
How to Sell One Home and Buy Another Without Losing Your Mind