6 tips to know when selling to buy
One of the most common questions/comments I get when dealing with folks who want to relocate is, “We want to list our house, but we don’t want to end up homeless.” I can relate to the desire to not be homeless, as it would cause serious detriment to my family’s well-being. Fear not, dear home shopper, it is indeed possible to have a place to live while looking for a different place to live. As such, I’ve constructed this short list to help homeowners like you navigate around this process.
1. Your rate will likely be lower than when you last purchased
Rates in 2020 nosedived to record breaking lows. Even now, as of this writing, they are lower than they were in 2018 and before. You can likely afford more house and pay about the same with the rate difference. Using basic math with a mortgage calculator, if you purchased a $200,000 home at 5% on a 30-Year Fixed Loan a few years ago, you’d roughly be paying $1,074 per month. Purchasing a $300,000 home with 2020-2021’s common rate, 2.85%, would have you at a monthly payment of about $1,241 per month. Your buying power increased $100,000 and the difference in the monthly is $167. Is having that finished basement, different school zone, or open kitchen you wanted worth an extra $100 a month? Either way, it’s worth exploring what current rates are to see how your buying power has changed.
2. You don’t have to sell your home prior to making an offer on a new one
Clearly, not everyone has money to buy a new home cash while paying for their old one. It’s a common misconception that in order to even entertain purchasing a new home, you must have your current home sold or under contract prior to putting in an offer. This is false. While it definitely HELPS to have a close date on your current home if you need it to purchase, there is nothing stopping you from putting in a new contract to purchase, with the contingency on the need to sell your current home. Having the property listed helps with seller confidence (as they have timelines of their own to keep, and knowing you are already marketed helps), but it is not mandatory. Having a ready to launch game plan with your agent will help, as you can have everything for the listing ready to go live at a moments notice. Your lender can have a conditional pre-qualification letter drawn up, stating that you are qualified upon sale of your current residence. With that, you’re ready to make a contingent offer.
Contingent offers aren’t as “strong” as non-contingent offers, but with the right preperation can provide enough peice of mind for prospective sellers to accept an offer just the same.
3. You can look for homes with an agent before you commit to selling
It’s perfectly common to want to know what your options are before committing to the course of relocating. Some folks are hesitant to even talk to an agent until some perfect listing pops up, and then they are led into a frenzy by timelines, quick and delayed marketing, and stress for interest. A better option is to talk to a real estate agent right away, to let them know you are planning for a lateral move. This way, you can have all the information upfront about the current state of the market, things you should do prior to listing, estimated earnings, etc. Waiting until that unicorn home appears before you make any moves or preparation is a recipe for undue stress. Plus, if your agent knows that you are planning to list, and knows where you are planning to move to, they can keep an ear out for potential homes that might suit your needs. Sometimes, there are situations where someone needs some time before getting out of their house, and knowing that they have an interested party can lead to a great deal and flexible timeline.
Your agent should be happy to show you homes that interest you, and that make sense for your next move. Working side-by-side from the beginning will help to keep timelines tidy, and ensure an efficient sale when YOU decide it’s time to move.
4. YOU Don’t have to use the same agent for both buying and selling
Sometimes, once the wheels start turning, you may be less than satisfied with your current listing agent, and can’t imagine what you’ll experience from the buyer side of the track. An agency agreement covers a very particular action, and is completed upon the fulfillment of that action. In the event that your house is under contract, but you’re frustrated from working with that individual, you have every right to tour for your next home with a different individual. It’s your process, and you should be satisfied with your service each leg of the way.
It could be things like their schedule, availability, or response time, but whatever it is, you should give them the opportunity to correct it and earn your business by voicing it. If you know what you know, call someone else. Make sure that if you’ve signed an agreement for both listing and purchasing another house, you notify the agent who holds the agreement that you’re pivoting that portion so you can get it in writing.
5. Everyone is talking about prices rising, without understanding how it affects them as homeowners
A common thing I hear is “We want to buy a new home, but prices are ridiculously high.” That’s debatable. While prices have definitely gone up, market speculation indicates that prices will plateau, not fall, in the coming years. You can research this yourself, with increased millennial buying and rates being low as they’ve been, the laws of supply and demand are at work here, and indicators show that demand is increasing. Most importantly, as a homeowner, you BENEFIT from the increased prices of homes. If you’re waiting for prices to drop for your next purchase, you will deal with the same effect on the earnings of your listing. As stated in the first section, for most, rates are LOWER than they were during their last purchase. So you make considerably more for your listing than you would have 4 years ago, purchase a similar or better suited home at a lower rate and keep the difference. You must keep in mind that the buy low-sell high adage will affect you as well, since if prices drop, so will your ability to sell high.
6. You can always refinance your current home to make improvements if you’re happy where you are
You can take advantage of the record low interest rates by refinancing your home instead of listing it. Let’s say you are in the home of your dreams right now. Everyone has space, and you don’t feel like moving. Oh, but that kitchen is SO OUTDATED, or you’ve always wanted to finish your bathroom or basement. These are times where refinancing can be helpful. Many folks are wary of refinancing, and for good reason. Pulling equity from your home frivolously can be dangerous to your finances, but to do so in a way that will strengthen your asset can be a positive.
Consult with a knowledgeable agent on what the current data in your area is showing. Knowing what homes similarly priced to yours are selling for will put you in the position to make an informed decision about what improvements to make and if it’s worth your time and money to do so. For example, if you bought your home for $140K years ago, but similarly sized homes are selling for as much as $210K, you can learn what factors those sold properties have in common. Do they have nice floors, kitchens, bathrooms? Do they have easily replicated features and updates? If so, you could pull the equity you’ve accrued in your property to improve your property and then have it reappraised. You’ve just increased the value of your property and garnered a lower interest rate without touching the money in your pocket. You could even limit the equity you pull to specifically cover the repairs and refinancing costs, and still have positive equity in your home. There is nothing requiring you to “start from scratch” in terms of your positive equity in your home.
The real caveat to this is you don’t want to “Over-do” the improvements made to the house. You don’t want to spend so much on the repairs that the returns are diminishing upon sale. To throw money at your home to add features that don’t add value (example: a pool when other comps don’t have a pool can complicate the valuation) is not advisable. Also, new fixtures such as water heaters, shingles, AC units, and general upkeep items DO NOT INCREASE VALUE, but instead maintain value. It’s a strange relationship, and if you’re interested in the link between value protection and value increasing, you can read about it in my other articles.
There’s tons to unpack on this topic, and everyone’s needs are different. If you are thinking of taking this task on, make sure you talk to a knowledgeable professional who can help you lay out a game plan to accomplish your goals. You’ll need reliable and knowledgeable lenders, and a well networked Realtor who is capable of multitasking.
As always, if you need more information, or need assistance in your process, you can email me directly at B.Harris@KW.com. I’d love to assist you!
-Brandon Harris - Harris Hawk Homes Real Estate
2835 Miami Village Dr
Miamisburg, OH, 45342
513-510-0447