You may have purchased your dream condo or small starter home a few years ago, yet suddenly find your space splitting at the seams with the arrival of pets, children or “stuff.” The sale and simultaneous purchase of a new home is sometimes a tricky undertaking and it helps to understand the steps involved with having to sell a property in order to purchase a new one.
You’ll want to start the process by following these steps:
- Understand the value of your home
- Visit a lender
- Start a new home search and keep tabs on the current market
- Prepare your home for going on market
- View homes for sale
1. Understand the Value of Your Home
Speak with a real estate agent who will help you understand the market price for your home. This should be a true, conservative estimate of what your agent believes your home will sell for on the open market. This price recommendation should be based on what homes are currently selling for in your neighborhood and should also be recommended after an in-person visit by your agent to these homes, as well as yours.
2. Visit a Lender
Based on the market valuation of your home, your lender can give you some sound advice as to what type of mortgage you can afford to undertake. You’ll want to ask things like “Do I have to sell the first home to finance the second?” and if not “How long can I comfortably carry two mortgages?” Also find out what your closing costs are estimated to be, and what the true cost of your home ownership will be (taxes, mortgage, payment, insurance).
3. Start a New Home Search and Keep Tabs on the Current Market
Get a feel for how long homes stay on market, what type of home you will get within your budget, and what kind of sacrifices you are prepared to make – for instance location, home size, yard size, finishes.
4. Prepare Your Home for Going on Market
De-clutter, have it professionally cleaned, lightly stage the rooms. Perform all of the handyman tasks you’ve been putting off. Consider getting a pre-inspection so you know if you are facing any home deficiencies.
5. View Homes for Sale
Start looking at anything and everything that comes on market. You really need to canvas the market to understand what your purchase options are so you are ready to make a move once you find something.
Ready to Take Action
At this point you should be ready to get your home on the market with a few days lead time, and also have a very good handle on what type of home you can purchase. The idea is to line up your home purchase to coincide with your home sale – especially if you need proceeds from the sale to purchase a home. Here is where timing comes into play, and things can get tricky. Some issues you’ll need to be aware of:
What type of market are you in?
If you are in a seller’s market – that means that your home will likely sell quickly. It could also mean that you will face competition on the home you want to purchase, meaning you could lose out to another buyer, or need to offer more money and less contingencies to get into your next home.
Writing a contingent offer means that the purchase is contingent upon you selling your home – essentially protecting you if the sale of your home falls through. While this seems like a good idea, it could actually prevent a home seller from accepting your offer.
There are two flavors of contingent offers. One is written in the case where your home is currently on market, but you haven’t yet secured a buyer. The other is written in the scenario that you do have a buyer and the transaction is in escrow (waiting to close). The second scenario will be more attractive to the home seller. If you are trying to purchase a home in a strong seller’s market, though, you will likely need to submit a non-contingent offer (or compete in some other fashion – for instance on price) in order to get the home.
It is fairly difficult to negotiate simultaneous closes (i.e. you sell and purchase your home on the same day.) Keep in mind that when you sell your home, the funds from that buyer need to be received in escrow and then distributed out (normally takes 1-2 days). For a simultaneous close to occur, you’d need to have all of the contracted dates aligned, and would need to use the same escrow company for both transactions.
In the event that your home sells before you purchase a new one, ask yourself what you’d do for temporary housing. Options include securing a short-term rental, staying with friends/family, housesitting, extended stay hotels, or negotiating a rent-back with your home buyer. Also make plans for all of your things – would you need to rent storage or pod space? Often times you can work with your moving company to store your items.
Find an Agent
This situation plays out differently for everyone. Your best bet is to team up with a real estate agent that you trust, and have them help and advise you through the process. Be informed as you go into the process so you can move confidently through the ups and downs that will occur.