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Timing a Buy, and a Sell

A large majority of home buyers also have to sell their existing home in order to move. Only renters, first time home buyers and buyers with significant funds don't have to worry about how to time the sale of a home with the purchase of the next home. This newsletter will talk about the different strategies that can be used to time a buy and sell.

This newsletter is targeted toward homeowners who need to sell their home in order to buy a home. It is not applicable for first time home buyers, or buyers who do not need to sell their home in order to buy.

The first question that needs to be answered is "Why is this important"? It's important to time your move to ensure that the sale of your home takes place on the same day, or very near, to the day that you buy your new home. If you don't then you may be moving out of your home weeks, or months, prior to the day you can move into your new home. This means that you will need to find alternate living quarters during the period of this transition. Not only is this disruptive to your family and children's schooling, but can also be expensive with bridging loans, and a hassle to have to move furniture and belongings twice in a relatively short period of time, or be living without your belongings for an extended period of time.

The order of which to action first depends on the characteristics of the real estate market that currently exists in your area and the area you are considering moving to. The characteristic which is most important is - is the market appreciating (prices are increasing because the demand for homes is higher than the supply) or depreciating (prices are stable/decreasing because the demand for homes is lower than the supply)? In an appreciating market the hardest thing to do is to buy a home. In a depreciating market the hardest thing to do is sell a home.

The general rule is to do the hardest thing first.

So, if the real estate market is appreciating then the first action that needs to occur is to find a home to buy. In this type of market, the hardest part is successfully purchasing a home - if the homes you like have multiple offers (which occur in an appreciating market) then you may have to make offers on several houses before you are successful on one of them.

If the real estate market is depreciating, then the first action that needs to occur is to sell your existing home. Once you have an accepted offer on your home, the extra supply of homes on the market and caused by the lack of demand, means that you are more than likely to find a replacement home relatively easily.

There are two types of contingencies that should be discussed in relation to this topic:

Buy - Contingent on the sale of your home

One is a contingency when you make an offer on a home that it is subject to the sale of your home. This means that the seller can accept your offer, take their house off the market (being under agreement), and then several weeks later when you still haven't sold your home, you exit the contract, getting all of your deposits back. Making an offer with this type of contingency generally means that you are unable to negotiate a lower price for the home. If a seller accepts an offer with this contingency on it, then the home has been on the market for quite a long period of time, and you've come in with a full price offer - there is really no other time a seller will consider this type of offer. The reason for this is that now the seller has to worry about selling two homes, theirs and yours, and if yours doesn't sell then theirs hasn't sold. By the time this happens the market conditions may have changed and we've gone from the fall market into the very quiet winter market which will mean almost no activity on it for another few months until the spring market comes around.

Sell - Contingent on finding a suitable home to buy

The second contingency is when you sell you make the sale of your home contingent on you finding a suitable home to buy within a certain time period. The issue with this type of contingency is that it reduces the buyer pool who would consider your home. When you reduce the buyer pool who will consider your home, you effectively reduce the amount of money you will obtain selling your home. Very few buyers are willing to 1) put down a deposit, 2) hire an attorney, 3) hire an inspector, and generally outlay money on a home when 3 or 4 weeks into the process, the seller says that they cannot find a home to buy and exit the contract. The buyer is not reimbursed for those costs.

Given the reluctance or buyers/sellers to accept either of the above contingencies how do you move forward?

Managing a gap between buying and selling

Instead of contingencies to facilitate your move you are better off, and its more cost effective, to 'time' your move. For example, let's say we are in a depreciating, or stable, market where the rule of thumb is to sell first. Prior to you putting your home on the market you will have been searching for a home and location first so that you understand the market in your target move area. This is important so that once you have an accepted offer on your home you are able to 'execute', rather than 'waste' time learning the market in the area you want to move. A 'normal' time frame for a closing is 6-8 weeks from offer acceptance. When you accept an offer, one of the negotiable items is the closing date. To time the move effectively, negotiate for a 10 week closing with your buyers. This will give you *about* 4 weeks for you to find a home to buy. If you find a home to buy within 4 weeks after you've accepted an offer on your home, then your offer to purchase will have a 6+ week closing in it, which will coincide approximately to, or to the day, of closing on the home you are buying and closing on the home you are selling. There is coordination with some dates in both sides of the transaction that you need to be concerned with but a good realtor will ensure that these dates are considered. For example, you want the mortgage contingency date for your buyers to be earlier than your mortgage contingency date on the home you are purchasing. The benefit of 'timing your move' rather than utilizing contingencies is that you are able to effectively negotiate both on the sale of your home and the purchase of your new home, and potentially saving thousands of dollars in the process.

So, what happens if, for one reason or another, there is a 'gap' between closing on the sale of your home and the closing on the purchase of your next home.

  1. If you close on the sale of your home first and you don't close for a month on your new home - this means that you will need to find temporary accommodation somewhere. Generally, most people in this situation, put their furniture into storage and stay in an extended stay hotel or with friends or family.
  2. If you close on the purchase of your new home prior to the closing of your old home, then you will generally need to take out bridging finance for the time difference. Bridging finance is necessary to 'supply' the money you would net out of the sale of your home, for the purpose of buying your new home. It will also mean that for the period of time that you own two homes you will need to be paying two mortgages. This is manageable, depending on your finances, if you know that there is an end in sight ie you close on the sale of your home 3 weeks later, but if you have purchased without having an accepted offer on your home then it can be quite tough (although you will have to have shown a bank that you can support two mortgage payments with your income and debt levels or they would not have loaned you the money to buy the second home in the first place).

Timing your move so that you are not homeless at any point in time, or paying two mortgages, can be done with a minimum of pain if you plan it right to begin with. You need to think it through, develop a plan, and then execute the plan.

If you would like an estimate of what your home would sell for in today's market I would be more than happy to come by, have a look at your home, and then provide a CMA (comparative market analysis) which will provide you with an estimate of what your home should sell for, along with a marketing plan to get maximum exposure for your home.

If you'd like to chat more about the topic presented here, or the Real Estate market in general, then please call me on (617) 997 9145, or email me at Dani.Fleming@MAPropertiesOnline.com.

Lexington Statistics







MLS data is provided by MLSPIN. While MLS data is believed to be accurate, it cannot be guaranteed. MLS data is constantly being updated, making any analysis a snapshot at a particular time. All raw data remains the intellectual property of MLSPIN.
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