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20 Comments on Buy first, sell later? Sell first, buy later? Recommendations?
Jim, I have found that during my 20 years selling real estate that selling first has so many more advantages and only few limitations. Most of my clients would rather have their current home sold and all their money instead of owning two homes and then having no money. Obviously I agree with you that educating your client and helping them understand the what if's of both options. For the sellers who want to buy first, move out of their current home and then fix their existing home up and sell it once the updates are complete we have a unique loan program with a commercial bank that makes owning 2 homes very affordable on a monthly basis. The lender provides a note on the home they buy with no monthly payments and it works like a construction loan so basically monthly interest simply gets added to the principal until they sell their current home and at that time they then pay off the home or convert it to a normal mortgage. This eliminates the need to make double payments monthly and makes affording both homes on a monthly basis much easier and offers some breathing room for the client. They still owe the interest but don't have to juggle 2 monthly payments which makes tons of clients smile. Sam Miller
I always remind people that when they move, for some period of time, they will either have two places to live or nowhere to live. They'll either have two mortgage payments, or none. They'll either have to move once, or twice before settling in the new home. The safest choice is the most hassle (sell first then move twice).
The best answer is different for most, but I agree with Sam that selling first and moving twice is probably better for most.
Jim, I'm assuming that your market is similar to ours right now high inventory and longer ADOM. I think your advice is right on target, while the clients are looking to our expertise and guidance we can not predict how the market is going to behave but we can provide appropriate statistics and generalize. All you need to do is point to the stock market, one day a suddend drop and the sky is falling, the next day is a rally.
As a newbie with a lot of business experience I've gone to charts like the one below to explain the current market showing what is coming on and what is coming off, I augment the discussion with current inventory levels and average deposits per month.
While the general advice is always dependant on a clients particular needs, in a high inventory market with prices declining and ADOM high and unpredictable it is always best to get your current property sold first - both from a piece of mind and pure economic/financial position. Now the flip side is there when the market shifts and it becomes a low inventory/low ADOM situation where prices are starting to rise and there are slim pickens out there - then be active in the new home search and lock in on a property you want - you do not want to get caught in a situation were there is so much pressure to buy that you either end up out in the cold or worst in a property that is compromise all the way around.
I have a customer who bought back in November and has had two mortgage payments since then. Her old house is finally under contract and will settle in a couple weeks. She had some major concerns about having two mortgages. So we put her into a Pay Option ARM with NO pre payment penalty on the new home. That way if money got tight she could always make the minimum payment. We did no prepayment so when her old home finally settles she can refinance to a straight 30 fixed and lower her balance using the proceeds of the sale. Even with the additional costs associated with refinancing a couple months later, she decided that the Pay Option was the best way to go. It was a good thing too because she had to make double payments for about 3 months more than she anticipated.
The best thing to do to answer a buyer's concerns about either having no where to live, or two mortgages is make a plan. I have done similar transactions where we refinanced the old home, drew out the equity for the down payment and put them into an interest only, or Pay Option loan. Important note is you need to do this before you list the old home.
Thanks for all the comments and insights!
Sam Thanks I'd like to look into that option a little more. Sounds neat!
I guess in previous markets sellers would take the equity out of one home to buy the second... I always prefer for myself to be clear of one home, before committing to a second home. Sometimes I think it is because I am from the old school, but in our business we can see a lot of heartache. I cannot lose sight of my objectivity to serve in an agent capacity. I advise, inform, substantiate what I have said with statistics, then step back and ask them what do they want to do.
The Atlanta market may be different than a lot of markets... in the sense that there are not many relo buyers. Sellers do not understand the quality of a local buyer is not as good as a guaranteed relo. A lot of times sales are contingent upon other sales, which are contingent upon sales. A domino effect..if one goes bad. Yet, it may be the only offer. I would not want my own personal fortunes tied up in two properties... I'd personally want to ride the storm out...get my money...then move forward.
If the Seller can stand it, it seems to me to be better to buy, get out, inspect, primp and paint, and show a house that looks great, even if vacant. No personal issues for the Buyers to "get over."
If the Seller can stand two mortgages, that is. That decision is specific to the individual, and if it is too much financial duress to handle, then they should sell and buy in that order.
I'm voting for selling first.. In today's market you can make the sale contingent on finding a new home for the seller.. if a buyer wants the home and has no deadlines this works great.. for the seller he still has the option of closing escrow and renting if he can't find a new home.. but either way the seller isn't carrying two properties..
As to which approach is best, it depends on the current market conditions affecting both properties . Here in Silicon Valley where multiple offers still occur in desirable areas, an offer contingent on the sale of the buyers old house won't even be considered a serious offer. Of course, the buyer could waive the contingency, but I would not want to be in the position of advising same since it could put their deposit at risk. After all, the old house could be in a less desirable but nearby area taking several months to sell resulting in double mortgage payments.
In most cases, it's usually best to only have to deal with one property at a time which means at least having the former property in a solid escrow before contracting on the new one even though in a rapidly rising market the client could get burned.
Never tell the client what to do! Carefully explain the pros and cons of each approach (losing the price difference in a rising market vs double mortgage payments) and let them decide since they will have to live with the unpredictable future consequences of their decision.
Ardell,
It would seem that your "poor woman" client may have legal recourse against the appraiser if she relied on an expert opinion of value (i.e. an appraisal) in making her decision to buy first. However, if, in fact, it was an agent opinion of value (CMA) it isn't worth the paper it was written on. Unless, of course, the agent referred to it as "an appraisal" which some unknowledgeable agents occasionally do, in which case she would have legal recourse against the agent and employing broker.
As a side note, it's a shame that the general public does not clearly understand the legal difference between a professional appraisal and an agent opinion of value (CMA).
Dan
Thank You for all the comments!
The safest bet is almost always selling first -- unless, of course, the client stumbles upon a new home that is such a great deal that it is worth potentially taking a hit on the price of their current home in order for it to sell quickly. I'm actually in the process of doing this myself -- I found a home that I just couldn't pass up, and plan to price my current property about 3% less than the average sales price in my neighborhood to ensure a quick sale.
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