What are your options for selling AND buying in this competitive market?
So you’ve decided that now may be the right time to sell your home. Between April 2020 and April 2021 home prices in Columbus increased ~17%! The market is hot, and a ‘for sale’ home sparks a frenzy akin to blood in shark infested waters.
If the stars align, you’ll know exactly where you’ll be living when your home sells, but for many sellers the challenge is not selling their home, it’s buying their next one.
So, what options do you have if you are looking to sell your home and buy another at the same time?
- Sell your home with a suitable housing clause.
Put your home on the market with a contingency that states that if you do not find suitable housing within a specified timeframe, you can back out of the contract. The buyer assumes the risk that a seller may not be able to find a suitable home. While this option is not advisable in a buyer’s market, there has never been a more favorable seller’s market than we have today, so this sort of clause is not uncommon. The disadvantage of this type of clause is that it could turn away prospective buyers. A more palatable option is a limited suitable housing clause, which provides a seller with additional time to find a new home, without the ability to back out of the contract.
- Buy a new home with a sales contingency.
This is a contract contingency used by a buyer who must sell their current home in order to buy a new home. The contingency simply states that if the buyer cannot sell their current home by a certain date, then the buyer can back out of the contract. This option is best suited for a buyers market, not the seller’s market that we are currently in. However, if the buyer’s offer for the new home is high enough and the buyer’s current home is very desirable, they may be successful using this option in a seller’s market.
- The Home Equity Line Of Credit (HELOC) or Home Equity Loan.
One major challenge to buying a new home is coming up with the down payment, especially when that down payment is tied up in the form of equity in your current home. Both HELOCs and Home Equity Loans are financial products, secured by a lien on your home, that allow homeowners to tap into this equity. The HELOC is a revolving line of credit with a variable interest rate and is more like a credit card, while the Home Equity Loan is a loan typically with a fixed term and interest rate. These products can be a great way to come up with the down payment for a new home, but they are typically only available to people with very good credit (700+ credit score), and having one can also affect a buyer’s ability to qualify for a mortgage towards the purchase of the new home. Therefore, a buyer should work closely with the lender(s) to make sure their goals can be accomplished, rather than hindered.
- Sell to an iBuyer (Instant Buyer) like Opendoor, Offerpad, Zillow Offers.
An iBuyer is a company that makes cash offers for your home, typically within 24 hours of submitting an online application. The advantages of using an iBuyer include selling your home quickly to a cash buyer and not having to make any repairs, wait for inspections, appraisals, loan underwriting, etc. Disadvantages include not getting top dollar for the home, and iBuyers not being available in all areas. One misconception is that by selling to an iBuyer you can avoid paying real estate agent commissions, but as the iBuyer will likely charge other fees e.g. listing fees, you may not save much or any money in the long run.
- Stretch out the closing.
In lieu of a suitable housing clause, the seller can negotiate a longer closing period. While most transactions close within 30 days, there is no requirement for how quickly they should close. A buyer and seller can negotiate a longer closing period, which allows more time for the seller to find a new home.
- The lease back.
An ‘Use and Occupancy Agreement’ allows the seller to continue to live in their home as a tenant for an agreed upon period of time after closing. One major disadvantage of this option is that because the transaction would’ve already closed, if the seller/tenant causes damage to the property, the buyer’s only recourse may be to file a lawsuit. Other factors to consider include eviction laws and property and liability insurance.
- Find temporary housing.
While this may not be the most desirable option for the seller, it is a good option nonetheless. Common short term living options include moving in with family or friends, month to month leasing, extended stay hotels, and house sitting. The seller can limit their packing and unpacking to just once by using portable storage solutions like PODS or U-Box Containers (UHaul). Temporary housing reduces much of the stress and anxiety of feeling rushed to find a new home.
Simultaneously buying a new home while selling another is common practice. However the options outlined above may not be a great fit for you, based on your risk-tolerance. You should discuss your situation with a licensed sales agent, who can help you navigate the process, and make the experience go smoothly.