The low inventory in the Denver real estate market, and Stapleton in particular, has made selling your home and moving to another one a little tricky to say the least.
In the past, you could make an offer on the home you wanted to purchase and as part of that offer you’d have the ability to back out if you couldn’t sell your home as planned. (the contract was referred to as a “contingent” contract) In today’s market that isn’t as easy as it used to be. Sellers are getting so many offers from buyers that don’t have homes to sell that they are often not willing to take these “contingent” offers.
So what are the ways people can make the move from their existing home to the one they want to buy? There is no “one size fits all” solution to this problem but here are some of the ways that it can be done:
Buy first then Sell?
1. Buy before you Sell by Qualifying for Both Mortgages. If you can qualify for both mortgages this is one of the ways you can make your move. By not having to sell your home to buy the new one you can be flexible and wait for the right home to appear on the market and when it shows up you can make an offer without a contingency that says you have to sell your existing home. The downside is you may have to carry both mortgages for a short period of time if your existing home doesn’t sell right away. In this market you can most likely sell your home quickly once you locate your new home and put it under contract but always plan for the worst and assume you have to carry both loans for a bit. Could you do so financially? If not don’t go this route. I’d also suggest you have your home valued by a real estate broker who can show you not only what it’s worth but also how long it will likely take to sell and how much cash you will receive after the selling expenses. You’ll need all these pieces to the puzzle for your planning.
2. Buy a New Home from a Builder then Sell shortly before the New Home is Complete. If you are looking to purchase a brand new home from a new home builder you might be a good candidate to buy before you sell. When I say “buy” in this scenario I mean you can go under contract on your new home and then you’ll have 4-12 months (depending on the builder) to get your home sold before the new one is built. On a new home you don’t actually close on the new home until it is 100% built. This is one reason I think new homes are so popular in Stapleton right now, they give sellers ample time to sell while the home is being built. (Warning: If you do contract on a new home before you sell your old one it’s fine with most builders if your lender pre-approval letter states you have a house to sell but do NOT expect the builder to give you a contingency that says you get your earnest money back if your home doesn’t sell. Your earnest money will be at risk and if you don’t sell your home and close on the new one you very well could lose it. Builders, like all sellers right now, have plenty of buyers so they don’t want buyers that have ways to get out of the contract. Again, get your home valued and know your estimated net proceeds before you put your earnest money at risk). Not sure how the new buying process works? Click here to check out a video series I shot while building our new home in Stapleton. Not sure what the builders are building in Stapleton and what you can afford? Click here for updates on all the Stapleton builders.
Sell first then Buy?
– If you can’t qualify for both loans and you don’t want a new home then you should look at ways to sell your home then buy the new one. Most people cannot qualify for both mortgages at once so they have to pursue one of the following options:
3. Sell then Rent until you Buy. I bet many of you cringe when you hear this option, I know it’s not popular but I can’t write a blog post about your options these days without at least mentioning it. Some people are having to go this route because it allows them to take in the cash from the sale of their existing home and gives them the flexibility to make non-contingent offers on the homes they like. The upside is once you sell you are very flexible on when you buy the next home. The downside is you have to move twice in this scenario and you often times have to pay a premium for a short term rental as well as possibly pay a penalty if you break the lease early. If you go this route focus on signing a lease with the most flexibility possible, the shortest notice period and the smallest fee to break the lease. You can also put a lot of your stuff in storage and don’t unpack it at the temporary rental home. Have any family close that will put you up for a while so you don’t have to rent? This may be an option and I’m seeing it happen but I don’t have to explain the potential downsides of living in your parent’s basement with your spouse and kids…..
4. Sell using a Sale/Leaseback scenario then Buy: This is another route that sellers are using to avoid having to rent somewhere else and to avoid having to move twice. A sale/leaseback is when you sell your home to a buyer but as part of the agreement you get to lease the property back for a certain period of time at a specified rental rate. The upside is you sell the home and get your cash out (giving you flexibility to go buy the next home) but you also get to stay in your home as if you were a tenant. I’m seeing this a lot in this market and I think it’s a good option. Buyers typically don’t love this agreement because they usually want to move in asap but most buyers are willing to tolerate it in this market because they don’t have a lot of other houses to look at. So typically the buyer wants to move in asap and the seller wants to stay as long as possible. It’s 100% negotiable but I’m seeing this period usually last a week or so up to a few months. If it goes longer than this the buyer’s lender is typically going to have an issue with it. Sellers should have the “Sell and then Rent” scenario described in #3 above as their backup plan cause there is no guarantee they will find the replacement home before their lease period ends. Some buyers may need to move in quickly so this does somewhat limit your buyers if you go this route (which in turn can limit the price you get for your home cause more buyers typically equals a higher price).
5. Sell with an extended contract period then Buy: This in another route for those looking to Sell then Buy. In this scenario the Seller contracts to sell the home but they negotiate in the contract that they actually closing does not occur for a longer than usual amount of time. The Seller could ask for a 60 or 75 day closing rather than the typical 30-45 day closing. This way they don’t have to lease their own property from the Buyer (as described in #4 above) but the downside is they haven’t closed on the sale of their home yet so they don’t have their cash in hand. Typically, this Buyer still has to write contingent offers on the homes they want which is a downside. Some Sellers will accept Buyers who have a house to sell that is under contract but it does make their offer a little weaker than others who don’t have something to sell. Some buyers may need to move in quickly so this does somewhat limit your buyers if you go this route. I think for most clients I’d suggest the Sale/Leaseback (#4) over this option…it does the same thing but in my opinion the Sale/Leaseback gives the Seller more benefits.
So which path should you choose? That’s for you to decide, I think each has it’s unique pros and cons. I’m happy to meet with clients and help them weigh all the various factors to figure out which one is best for them. There is no doubt making the move can be a headache and a distraction from all you have going on in your life but we work hard to make the transition as smooth as possible. If you’d like to meet to discuss your move or you just have a question my contact information is below.
Did you use one of these 5 avenues when you made your move? How did it work out? Would you do it differently if you were to do it again? I’d love to hear your story – please leave comments below for others to learn from!