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Sell one home and buy another

Sell one home and buy another - blue house with red door - Craftsman style homeHow do you sell one home and buy another? Most people who buy and sell a house need the equity from the current home to go into the next one. There are a few possible approaches.

In order of what I believe to be the probability of success, these options include:

  1. Buying a house before selling: If you have enough equity, you may be able to buy the next home first (perhaps using a line of credit on the existing home or a bridge loan), move out, then sell the first place with professional staging. If it is a seller’s market, which normally is the case in Silicon Valley, this is the easiest way to go if possible.
  2. Move out, rent elsewhere temporarily, stage and sell your home, then buy the next one with cash in hand. Paying a mortgage and paying for a rental and staging is not cheap, but staged homes usually sell for more. It’s tons less stressful for the sellers to not live in the home while it’s being shown, too.
  3. Live in the current home while it is marketed and sold, then rent back for 30-60 days and purchase the next home during that window of time. (If buying isn’t successful, move to a rental and keep looking and bidding.) This works if there is enough inventory to choose from. Right now inventory is exceedingly tight, so this is not easy to pull off.
  4. Write an offer on the next home “subject to” or contingent upon the sale of your current home. Most sellers won’t agree to this unless their home has been on the market a long time and yours looks like it will be priced to sell fast.
  5. Sell your current home “subject to” or with a contingency to find and buy a replacement property. I have never seen this work in Santa Clara County, but understand that in other parts of the state it can be fine.

These options are the gamut of choices, in a nutshell. Each option has things to consider and weigh.

Sell one home and buy another: stress

We should start by acknowledging that to sell and buy a house at the same time is incredibly stressful most of the time because there are so many unknowns. How long will it take to sell my current home? Can I afford the type of house I want next, or will I be outbid? Will we have to move a few time? Will interest rates rise? Will someone show up unannounced, or worse, peer through my windows or wander into my backyard?

The first question when you sell one home and buy another: whether or not to live in the home while selling it

How do you feel about living in the home while it’s on the market? In our Silicon Valley real estate market, well priced homes can and often do sell quickly, after just a week or two. If you are out of the home during the day, and can escape on weekends and the occasional evening, this may not be a big hurdle.

On the other hand, if you work from home, have children and pets, and don’t live like your abode is on a reality TV show, the thought of clearing out of the home and keeping it pristine 24/7 may be too much.

Today most sellers move out before selling in our area. This was a popular option before COVID made an appearance, but its popularity soared starting in 2020. If possible, this approach feels safer, privacy is more protected, there will be less angst about keeping the home in perfect condition, and on and on.

Moving out can mean either finding a way to buy the next home first, such as by pulling equity of of the current home with a HELOC or bridge loan, or it can mean moving into a rental. Over the years I’ve helped several clients finance the second home first, but also had clients move to a rental first.

The advantage of this is that you can stage the home to sell and not have to worry about being 200% show ready 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 (or a mortgage and a rental). The home will not sell well if empty, so do hire a professional stager if going in this direction.

And always, be realistic in the pricing strategy, no matter when you move out.

Living at the home while selling it

Sale pending sign - sell one home and buy anotherOne of the most common ways, or most preferred ways, to sell one home and buy another is to rent back for a period of time after selling the current home. Each seller will have to figure out, with their agent, the best strategy for showings and open houses. Always keep in mind that when homes are too hard to view, they tend to sell for less.

Rentbacks

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.

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 when you sell one home and buy another using a rentback,  there are special considerations and choices regarding who pays for what, the amount of the security deposit and rent, and many other things.

Contingency for sale of the first home

Another option, though unlikely to work in the current market, is to sell with a longer than typical escrow and buying the next home with a contingency “subject to the successful close of escrow” of the first home. This is a good strategy in a balanced market, but an offer with contingencies like this may be less likely to be accepted now.

If you love a home that’s been on the market a while, it may work. It is possible to do a concurrent 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 if the buyer’s loan rate lock can be extended.

Trying to sell one home and buy another all at once, or all in one move is indeed stressful. Some folks would not do this – it’s just too frightening. Even if sellers live in the home until the close of escrow, some will plan to move in with family or move to a month by month rental or corporate rental while looking for the next home.

Talk with your lender early on to buy and sell from a better position

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.

I have had success helping people to do the two-house-juggle many, many times and I’m happy to report that only once in my career did someone not get a house during the rentback period.  To be sure, our dire lack of inventory does make this more challenging today than it was in the past. It’s a lot easier to sell one home and buy another if you do the latter with cash in hand.

If it were me needing to move right now, I’d move out, rent a temporary place, and then buy (as quickly as possible since prices are rising).
Looking to sell one home and buy another? We work with buyers and sellers and would be happy to put our expertise to work for you.

 

Related reading to selling and buying

Deciding to sell (this site)

Selling your home in Silicon Valley – 9 FAQs (this site)

Creating a cheerful, sunny, welcoming environment for selling a Silicon Valley home (on our Valley of Heart’s Delight blog)

Valuation: Price Per Square Foot is only Part of the Answer (on our Valley of Heart’s Delight blog)

What is a preliminary title report? Why does it matter? (Valley of Heart’s delight blog)