More on the moving mess that is the contingent purchase
As with all gripping real estate topics of monumental import (termites, our blog’s birthday, and my 2008 trip to New Orleans come to mind), we have written about this one before. Since it seems to be the Topic du Week this, uh, week among our clients, I shall don my Ms. Redundancy hat and boldly revisit the whole concept of moving – from one house to another.
You would think this would be an easy thing to accomplish. After all, many people actually live somewhere when they make the decision to live somewhere else. If the current “somewhere” is a rental or your folks’ rec room over the garage, then it’s not such a big mind bender. You find a home, you get your offer accepted on said home, you make it through your contingency period, and then you give notice.
But what if “somewhere” involves a place with your name on title? In this case, it’s a little trickier. Fortunately, you may have several options.
Temporary Land Baron (or, buy first and sell later)
Steve called this the “huevos” scenario. You have oodles of cash and awe-inspiring earnings, or maybe you have just enough on hand to satisfy the silly down payment and closing costs requirements. (Yes, you will need that stuff, since lenders have gotten goofy about requiring that you actually have some money and visible means of support before handing you a quarter-million dollars, a half-million dollars or more.)
If this is you, then you are one of the lucky ones, because you can put the proverbial cart before the yard sign. You purchase your replacement home, as they say in Vegas, on the come, with the intent and expectation of selling your current home after the fact. The good news is that this allows you to negotiate your purchase from a position of strength, unshackled by the ol’ “contingency of sale.”
The bad news is that the actual proceeds on the sale of your current home are yet to be determined. Your agent has given you an opinion of value, but (and I can’t say this often enough) it is just an opinion, because your agent is not buying your home. The guy with the checkbook and the desire to move in will ultimately determine the value. That’s where the huevos part comes in. Final sale price and market time are unknowns. They are guesses – educated guesses, but guesses no less. Prepare yourself for the worst case.
An important side note is this. You have likely made a decision to purchase in this market because prices are attractive; your own buyer is no different. The biggest logic flaw we see today is the same person expecting a smoking deal on their purchase yet a new, record high sale price for their own home. Remember, it’s rare that you can have it both ways. The corollary is that if you are waiting for your current home to be worth more, chances are the home you want to buy will be worth more too.
Musical Moving Trucks (or, concurrent closings)
This is the one that every truly contingent buyer dreams of – that game of musical moving trucks where the engines fire when both the sale and purchase close in one, split-second crescendo of seamless recording bliss. It’s becoming more of a rarity.
And here’s why. First, there is the little matter of the market. Short sales and banked-owned homes are still out there and in large numbers. In my own Scripps Ranch Zip code, approximately 20 to 25 % of the active listings are short sales or bank-owned. (I say 20 to 25% because Stats Man has too busy opening escrows and meeting the stager this week to dive really deep into the numbers. You’ll have to just take this on faith.)
What short sales and bank-owned homes share in common is that it is the bank that will ultimately be approving the sale. And, in addition to the little modern-day quirk of the mean banks requiring buyers to have money and jobs, banks do not want any strings attached. They want low-risk, smooth-as-silk transactions. They want the home to close and fast. They will not look at offers contingent on selling a home; so, for the concurrent closing crowd, these homes will not be available.
This means that you are left with traditional sales to consider. But, like the banks, sellers do not like uncertainty, particularly in a market where homes are selling as fast as a Best of Barry Manilow boxed CD set. Finding a seller who will accept your contingency is difficult and, if you do, you are back to conceding some of that negotiating power. You want something (time to sell your home), and it will likely cost you.
There is always the possibility that you can sell your current home “contingent of finding suitable,” which means you have found a buyer who is flexible and willing to give you some time to shop. Or, maybe you have found a buyer who will allow you to rent-back after closing. These things can and do happen, but once again, any time strings are attached, there will likely be a price tag at the end. And, in a buyer’s market, not everyone is feeling all sensitive and accommodating where the seller’s needs and wants are concerned.
Life at the Halfway House (or, sell first and buy later)
This, at least from a practical and financial standpoint, is the best plan of attack. And, I say “best” because I am not the one that is going to be enjoying the complementary continental breakfast at the Residence Inn for the next four months. I am speaking from my strictly clinical perspective.
If you sell first, you know what you’ve got. If you sell first, you come to the bargaining table wearing a big non-contingent halo.
If you sell first, you also have to find someplace to put your cookie sheets, your children, your dog and your sanity in the meantime. This could be a short-term rental (expensive), that place with the continental breakfast (uncomfortably cramped, more expensive, and not crazy about your pit bull), your parent’s house (painful no matter how tasty the meatloaf is), or your agent’s guest room (not an option).
As long as the market remains what it is – challenging for sellers and just a little bit goofy (or, as Stats Man would say, “dynamic”), trading in your home for another involves some moving parts. It can be done – it’s done every day – but make sure you discuss with your agent all of the options and which of those options you would be willing to consider.
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