The biggest question homeowners are dealing with in today’s Real Estate market isn’t deciding whether they want to move, but what kind of move they want to make. Home owners all over the nation are ready and financially able to make a move. The question they face is, should they upgrade to a bigger, better home, or sell the large family home and purchase something a little easier to maintain and manage. Due to the meteoric rise in home values, just about everyone is sitting on a large pile of equity that makes moving easy. The issue is, ‘Where do I go?’
It’s no secret that inventory around the nation is scarce right now. It’s the single greatest issue we as Realtors are facing today. If you talk to any Realtor, they will tell you that they have a ton of buyers, but no homes to put them in. The worst part is that many of those potential buyers will become sellers once they find the home they want to buy, and they often want to use a “contingent offer” when buying their next house. A “contingent offer” means that a buyer makes an offer on the house they want to buy, but will only complete the purchase on the condition that they are able to sell their current home. Before 2020 (really before Covid), a buyer could very easily write a contingent offer on the new home they desired because competition wasn’t so intense. They would then negotiate an additional few weeks to list and accept an offer on their current home before purchasing the new one. Those days are long gone. In todays market, you might as well not even bother writing an offer if it’s contingent because new listings receive multiple offers almost immediately and sellers prefer not to wait.
This is the point where many potential buyers decide to step away from the prospect of moving. But you really shouldn’t give up because you have options today that you didn’t have formerly.
First, ask your lender if you’re able to purchase a new home without selling your current home. Many buyers purchased their current home at such a great price that they have the ability to carry two mortgages at once. Before 2020, the prospect of purchasing a home without selling your current home would scare away many buyers. The fear of carrying two mortgages at once was a daunting challenge, and one that many people couldn’t afford to risk. In todays market, that isn’t necessarily a logical fear. If you list your home at the price your Realtor tells you to, you will almost certainly receive multiple offers, and have it locked up under contract within a matter of days.
The other aspect of this strategy is that many people don’t realize how the mortgage process works. Once you close on a home, you don’t pay a mortgage payment on your new home until the following month. As an example, let’s say that your closing day is April 10th. Your first mortgage payment isn’t due until the May 1st. But here’s the kicker: mortgages are paid in arrears. This means that your first mortgage payment isn’t actually paid until June 1st! That gives you, as a buyer, over a month and a half without an actual payment on your new home. In today’s market, that is more than enough time for your Realtor to list your current home, accept an offer, and close without ever having a double mortgage payment. So the fear of a double mortgage payment that was a real possibility in previous markets, just isn’t a logical fear in today’s market.
But let’s say that you’ve found out from your lender that you just aren’t able to purchase your new home without selling your current home. The margins are just too tight. I still believe it’s a wise decision to move forward and put your current home up for sale. This decision is the hardest one to convince sellers to make. It feels like a real ‘leap of faith’. The fear of being homeless is very real and very scary. This is where we, as Realtors, need to get creative and buy as much time for our clients as possible. In this scenario you have a few options. I like to list the home, accept an offer, and negotiate as much time as possible to close on the home. Sometimes even a 2 or 3 month closing period. This doesn’t mean you will take that entire time close. Clearly, if you find a home you like, you can close earlier. This simply allows you to write offers that are only contingent on the closing of your home (meaning you already have an accepted offer; you only need to close).
Now let’s say you use up that entire 2 or 3 months’ time and still haven’t found a home. Your Realtor will now negotiate an additional 2 months for you to stay in your current home rent free. In this crazy competitive market, you can almost certainly find a buyer willing to give you this time. All in all, your Realtor will have 4 to 5 months to find you a new home. If you have a good Realtor, this should be more than enough time to accomplish that goal.
There is also one last thing you can do, although this is not my favorite option. When accepting an offer, you can write in the contract that this sale will not go through until such time as you have found suitable housing. In essence, you accept an offer, and press the pause button for as much time as it takes for you to find the new home you want. This takes away any possibility of you ever being homeless; but in turn, you are also less likely to find buyers willing to accept this condition. Also, there is a good possibility that the buyer you have under contract could, at some point, walk away, especially if you end up taking a very long time to find your next home.
Another huge factor that escapes many home owners in this process is that they don’t realize how much equity they have in their current home. They have some idea, but are almost always shocked when they find out just how much money they would walk away with from the sale of their current home. And they don’t factor in how much their monthly mortgage would go down if they took all of the proceeds from the sale of their current home and put it down on the purchase of their new home. When people begin searching for a home, they almost immediately decide on a price they think they can afford. They often run a mortgage calculator app to come up with this figure, and they convince themselves this is the maximum price they can afford. What they aren’t considering is the massive chunk of equity they could potentially put down once they sell their home – which could drive down the monthly mortgage payment significantly. So instead of convincing yourself that you know your purchase price point, contact a professional (a lender or a Realtor) you trust, and get the facts. Being able to purchase a more expensive home than you thought you could comfortably afford might be that extra push you need to make a move. The market is hot right now. Cash in and make that upgrade that you didn’t think would be possible for many more years.
I am a firm believer that one of the biggest things hindering this market right now is a lack of understanding on the part of the consumer. In large part, we professional Realtors can take the blame. It’s our responsibility to educate the consumer. If everyone knew that they had options, and that there are buying and selling strategies to fit almost any situation, I believe we could open the flood gates and gain a massive amount of available inventory. In closing, knowledge is power! Contact a professional Realtor you know and trust, and get the facts.