Homeowners preparing to sell their properties and immediately buy new homes must carefully organize their plans to execute smooth transitions from owner, to seller, to purchaser. Prior to making offers on homes or listing current properties, review these five preparatory guidelines to get the greatest return on investments (ROI).
1. Shop Professionals
Judging the complexities of real estate transactions is best left to the experts. Listing agents have insider knowledge on the current trends within their markets, professionally advising on competitive pricing and successful marketing.
When sellers plan to buy in the same market they own, their listing agent typically acts as their buyer’s agent, too. Homeowners who plan to sell and relocate to new cities must shop for local agents in their future markets. Buyers rely heavily on the advice and trust of their agents in unfamiliar locations to ease their transitions.
Find agents with excellent client reviews who know their markets well and offer the best advice. Contact them as soon as possible, even months before the prospective transaction, to align a plan suited to the trends of the market.
2. Leverage Market Trends
Homeowners selling and buying within the same market generally face both advantages and disadvantages on each side of the transaction. Sellers’ markets are low on inventory, which make them ideal for the selling half of the transaction but competitive between buyers making offers. In these markets homeowners may want to begin by shopping for homes before trying to list their properties because it’s more challenging to buy. However, without finalized home sales of their own, buyers may not have enough cash to provide enticing offers for sellers with numerous options.
Buyers’ markets make it simple to find homes to purchase because for-sale inventory is high, but selling current properties presents challenges. Low buyer demand drives home prices down, making the resale value of current properties unfavorable. Minimal ROI limits buyers’ budgets for simultaneous purchases. In such markets, homeowners should begin with the slowest process of selling or even consider waiting to sell until resale values recover.
Alternatively, homeowners selling in a sellers’ market and buying in a buyers’ market have great potential for profitability. Work with local professionals to keep transactions on schedule to increase purchasing power and deliver the highest ROI. Market trends might encourage homeowners to evaluate properties in more advantageous neighborhoods.
3. Include Selling Contingencies
A homeowner who plans to sell a property and buy a new home can either sell first, and hope to find a home to buy before the sale closes; or buy first, and hope to sell before the purchase closes. Savvy agents know their markets well enough to recommend an angle, but emotional shoppers sometimes act before considering financing and timelines.
In cases where purchases come first, buyers can make offers contingent upon their current homes selling. In the same way that buyers include inspection contingencies to protect themselves from hidden property damages, financial contingencies prevent buyers from offering money they cannot finance. If sellers accept the contingent offers, buyers have grace periods to sell their current homes to fund their new purchases – or else their purchase offers terminate.
4. Negotiate Prolonged Escrow Cycles
Conversely, homeowners selling their properties before buying can negotiate lengthy escrow processes. The escrow stage of closing on a home typically takes 30 to 45 days, depending on buyer loan type. All-cash buyers generally proceed through escrow in less than 10 days while FHA loan holders’ escrow might last 45 days. However, sellers can request varied escrow lengths. Longer escrow processes allow sellers to aggressively shop for homes with the confidence that their current properties are in contract to sell.
Before listing properties, homeowners should get pre-approved by lenders with as much paperwork completed as possible. Once current properties rest in escrow, sellers can shop rapidly and expedite their own purchases within the narrow escrow window of the sale.
5. Prepare a Backup Plan
Even with real estate experts guiding the plan to leverage markets, offers sometimes collapse. Homeowners risk carrying two full mortgage payments until both transactions close, calculating to potentially 50 to 60 percent of a homeowner’s income. Prepared homeowners schedule back-up housing if they’re selling first. Whether renting a storage unit for their belongings and residing with relatives or renting a month-to-month apartment, it’s critical to have a secondary plan if the risky process fails. The transaction is stressful enough without adding a displaced, limbo stage. Organizing a failsafe reduces the pressure throughout the simultaneous process of selling and buying.
Homeowners considering synchronized home sale and purchase accept significant financial risk for both financial and personal rewards. Before initiating a whirlwind gamble on real estate, talk to local agents and review the advantages within the current market.
Contributor’s articles are written by members of the personal finance community. Each article was reviewed Moolanomy’s editorial team before its publication.