How to Successfully Sell and Buy a Home in Today's Market

Record low levels of homes available for sale will continue to be the market theme in 2022.  Consequently, homeowners who want to move are hesitant as a result of the fear of not finding a desirable replacement home after they committed to selling their existing home.  As we all learned in 2020, there are always unique options and alternatives to address challenges in the marketplace.  If you own a home that you wish to replace with a new home with as little disruption and stress to your life, as possible, here are a few options to consider. 

BUY FIRST – with today’s record-low interest rates you may qualify for interim financing to purchase your next home before selling your current home.  Financing options include a home equity loan on your current home – borrow the equity in your current home to purchase your next home in advance of selling your existing home.  In this case, you secure a first mortgage on your new home based upon the projected equity that will ultimately be realized from the sale of your existing home.  When the existing home is sold the home equity loan is paid-off together with the existing mortgage (if any) and you are left with the desired first mortgage on your new home.  This scenario can also be accomplished with a first and second mortgage on your new home.  The second mortgage is ultimately paid off with the proceeds from the sale of your existing home after the purchase of your new home.  Depending upon available funds, another option is to secure a large first mortgage on your new home.  Upon the sale of your existing home the new loan can be reduced with a one-time principal pay-down.  In some situations, the monthly mortgage payment can be recast to reflect the adjusted principal balance of the new mortgage.  The above options are, of course, dependent upon your ability to financially qualify for the new loans in addition to your existing mortgage.  There is the risk of your existing home not selling as quickly as planned, leaving you with a large debt load.  It is critical that when considering these options, you employ an experienced, reputable Realtor and mortgage lender to carefully evaluate market conditions, valuation of your existing home and the projected timeline for the sale of your existing home.  It is critical to evaluate the worst- case scenarios such as your existing home selling for less than anticipated or the sale taking longer than anticipated before proceeding.  This is a time for a conservative, worst-case evaluation not a best case, rosy evaluation.  For many homeowners, this approach may not be feasible or may present too much financial risk. 
 
MUST SELL FIRST – if you are like most homeowners, the sale of your existing home is required to purchase your next home.  In this case, there are a variety of options.
 
Option 1.  Sell your existing home and move into temporary housing while looking for your new home.  The advantages to this approach is you know exactly how much money (existing home is sold) you have to spend on your new home, you are now in a position to buy the new home without a contingency for the sale of your existing home,  you will not be under pressure to buy quickly in an effort to move from your existing home directly into your new home (avoid a short term double move) and you will have maximum negotiating leverage both in the sale your existing home and the purchase of your new home. The disadvantage is the cost and inconvenience of moving twice and living in temporary housing.  This option is more suitable if you are looking for a new home (family home) that is generally available in the marketplace.  This may not be the best option if you have specific requirements for your next home (forever home), and you do not have to sell or want to sell your existing home unless you find the ideal replacement home. 
 
Option 2.  Sell your existing home with a rent-back provision to allow you to stay in your home for 60 days or more following closing.  This secures the sale (proceeds) of your existing home while allowing time for you to find a new home during the rent-back period.  The advantage to this approach is you know exactly how much money (existing home is sold) is available to spend on your new home and you may now buy your new home without a contingency for the sale of your existing home.  The disadvantages are you must find a replacement home during the rent-back period (most lenders will require the buyer of the existing home to take occupancy within 60 days of purchasing the home) or move into temporary housing and consequently you may feel pressured to compromise on the purchase of the new home to avoid moving to temporary housing.  Once again, this option is more suitable if you are looking for a new home (family home) that is generally available in the marketplace.  This may not be the best option if you have specific requirements for your next home (forever home), and you do not have to sell or want to sell your existing home unless you find the ideal replacement home. 
 
Option 3.  Attempt to purchase your new home with a contingency to find a buyer for the sale of your existing home.  This is difficult to accomplish in a fast-moving market.  It is most feasible when you have a very saleable home in a fast-selling community, and you are pursuing perhaps a rural property that may take longer to sell.  The seller of the rural property may conclude that your existing home will sell faster than their rural property and will therefore be willing to take the risk of a sale of home contingency.  However, you typically lose negotiating leverage on both transactions.  The seller accepting a contingency contract will expect a desirable price as compensation for accepting the risk of the contingency contract and you will most likely need to price your existing home to sell quickly to meet the timeline of the sale of home contingency.  Searching for a new home with a sale of home contingency can be very frustrating.  In current market conditions, home sellers will often have the option (multiple offers) to accept a non-contingent offer rather than take the risk of accepting a contract contingent upon you selling your existing home.
   
Option 4.  Attempt to purchase your new home with a contingency to close (you're under contract to sell your existing home) the sale of your existing home.  This is one step up from option 2 above.  In this case, a buyer has been secured for the sale your existing home.  The challenge is usually timing.  With a buyer in place for your existing home, the question becomes, how long will the buyer of your existing home give you to find a replacement home before you are forced to make a double move.  

There are a few risks involved with Options 3 and 4: 
  • It is most desirable to have the buyer of your existing home complete their inspections before you pursue a replacement home.  The first question the listing broker of the replacement home will likely ask is if the inspections have been completed on your existing home.  The Colorado sales contract allows buyers to terminate a sales contract during the inspection period (typically 8-12 days after the sales contract is accepted) at the buyer’s sole discretion.  Consequently, it is best for the inspection contingency on your existing home to be satisfied as quickly as possible.   
  • You will still be at a disadvantage in a competitive bidding situation for the replacement property with the risk associated with a contract contingent upon the closing of the sale of your existing home.  The contingency may prevent you from successfully purchasing your desired replacement home. 
  • You may determine during the inspection of your replacement home that the home is not suitable for your purposes.  If the contract for the replacement home is terminated you may still be contractually obligated to complete the sale of your existing home which will likely result in a double move.   
Once again, these options are more suitable if you are looking for a new home (family home) that is generally available in the marketplace.  This may not be the best option if you have specific requirements for your next home (forever home), and you do not have to sell or want to sell your existing home unless you find the ideal replacement home. 
  
Option 5.  Secure a contract for the sale of your existing home with a contingency for you to find a replacement property.  This type of contingency often scares off potential buyers of your existing home in normal market conditions.  However, in the current low inventory environment, some buyers may be willing to accept the contingency if they can be flexible on the timeline for the completion of their purchase of your existing home.  As discussed under options 3 & 4 above, it is most desirable to have the buyer of your existing home complete their inspections before you pursue a replacement home.  However, some potential buyers for your existing home will be reluctant to invest in property inspections until you have found a replacement property.  Timing is usually the challenge in this scenario.  If the buyer of your existing home is ready to close on the sale (inspections and mortgage appraisal and approval are complete) you will have the ability to close quickly on the sale of your existing home as soon you secure a replacement home and complete all inspections on your replacement home.  This will minimize the negative impact of a contingency for the closing of the sale of your existing home in negotiations with the seller of the replacement home.  The question of how long the buyer of your existing home is willing to wait for you to find a replacement home is a critical factor in this scenario.  Although this option presents some challenges in the marketplace it is the best option if you have specific requirements for your next home (forever home), and you do not have to sell or want to sell your existing home unless you find the ideal replacement home.  Typically, the existing home must be unique with strong market appeal for this option to work successfully. 
 
Every option has unique strengths and weaknesses just as every home seller/buyer has unique needs and objectives.  The best approach to minimize risk and stress while maximizing the probability of successfully purchasing a wonderful replacement home is to work with an experienced real estate professional.  The Tom Gross Team has over 60 years of combined experience.  We have the knowledge, mortgage resources and proven strategies to make your move to a new home a reality.  The first step is to carefully assess your objectives.  Once we understand your situation and objectives, we will develop a unique and realistic strategy for your successful home sale and purchase.