Basic real estate transactions present difficulties on their own. Buying while selling doubles that difficulty and places you in the middle of a “double deal.”
A double deal occurs when a home owner needs to sell their current home before buying their next one, creating two transactions that unfold simultaneously.
Timing is crucial in situations like these. Inexperience and lack of education about these matters increase the probability of expensive burdens that include renting or placing your belongings in storage until you find your new home.
Zillow reports that 71 percent of sellers are buying at the same time. We’ve found this percentage to be true as the majority of our clients find themselves in this type of transaction.
We have found that double deals have three crucial focal points:
1. Identifying your next home
Due to the many different routes you can take in these transactions, there isn’t an exact path to follow. There are, however, several decisions you can make to ensure everything happens in a timely manner.
First, you’re going to want to decide where you’re planning to move to before listing your home.
Beginning your buying process before selling lowers the likelihood you’ll need to rent if your home sells quickly.
If the seller of the home you are interested in is also trying to buy a new home, a post-occupancy agreement might be proposed. This would allow the sellers to stay at the property after you’ve purchased for a predetermined period. This is a contingency you can use yourself when selling your own home. If negotiated properly, it’s possible to receive monthly rent from the seller for the duration of the agreement.
2. Selling your current home
Now that you have a better idea of where you’ll live next, it is time to address the sale of your current home. Being aware of the current market conditions will guide you how to price to ensure a quick sale.
In a buyer’s market, you don’t hold the leverage. This kind of market is characterized by high inventory therefore making your home just one of many currently available. Deciding on a reasonable price that doesn’t sacrifice the value your home offers is the ultimate goal.
In a seller’s market, where the inventory is low, you’ll hopefully have the luxury of entertaining several offers. Although your price ceiling could be higher, you still want to reach a reasonable price to ensure you’re not stuck paying two mortgages.
3. Putting it together (the in-between)
Don’t worry. Most people can’t afford to shoulder the cost of two mortgages. Ideally, you would have enough savings to carry you through the process.
If you don’t, here are some options we’ve presented our clients to handle the “in-between”:
Home equity line of credit: If your current home has enough equity, you might be able to qualify for a HELOC. The benefit of using your equity allows you to exclude a “subject to Sale of Buyer’s property” contingency. This type of loan is paid out over a ‘draw period’ and is up to a maximum amount. It differs from a typical mortgage in that you don’t receive a lump sump at closing. You only pay interest on the amount you use.
Borrowing against your savings: With this option, a buyer can lend themselves a percentage of their 401k balance to fund the down payment for their new home. Certain restrictions might apply. If you plan to pay off the loan as soon as you close on your previous home you might avoid penalty costs. But you might also want to consider using the proceeds of your sale to pay down your new mortgage even further.
In a perfect world, the stars would align, money would grow on trees and you’d close on your old and current home the same day. Even though it doesn’t happen organically, it’s possible to coordinate if communication between all parties is strong and consistent. Beyond that, having an experienced agent will ensure you avoid many of the difficulties most people face in these types of transactions.
Abel Gilbert is broker/owner of the Abel Gilbert Group in Miami. www.abelgilbert.com.
▪ This column, written for the Broker’s View space in Business Monday in the Miami Herald, is an opinion piece representing the view of the writer. It does not necessarily represent the newspaper’s view.
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