Plan Where To Move When Your House Sells.

Most sellers wait until their house sells before figuring out where to move. This is a very stressful end to a sometimes stressful selling cycle and should be avoided, if possible. Here's how.

Problem:

Let me paint a picture of how many sellers end up in a panic when their house sells. The seller's house was on the market for several weeks since it needed some updating, the price was a little too high, and the seller's neighborhood was transitioning from a family destination to an area where mostly empty-nesters live. Through a series of price reductions, updates to bathrooms and the kitchen, and staging the house for the couples/singles with grown children, the sellers were able to find a qualified buyer. Unfortunately, this buyer has been living in temporary housing and wants to complete the purchase and move in in two weeks. You may think this is not realistic but it happens all of the time.

As the sellers (now buyers) are negotiating the contract to sell their house, panic usually strikes as they realize that they will be homeless in two weeks unless they find a new home quickly. They inevitably want to look at all of the homes on the market that match their criteria in the next two days. They make an offer on a home that is similar to the home they hoped to find with a contingency for the successful sale of their current house. Because of their rush, they failed to consider critical things like the state of their new neighborhood and they also overlooked some design quirks that will make their furniture difficult to place in their new home. In addition, their offer price and terms were too generous since they wanted to buy a replacement home instead of moving twice. First, to temporary quarters then to their new home. Unfortunately, the owner of the buyer's replacement home found out about the buyer's time constraints and took as much advantage of his leverage as possible which resulted in the buyer paying too much for the replacement home.

Possible Solutions:

What could the sellers (now buyers) have done differently to avoid this last minute panic and buy their dream home at a reasonable price and terms. The best way to reduce the stress of buying a replacement home is to lengthen the purchasing timeline. Also, don't rule out moving to temporary housing for a short time and putting your stuff in storage while you find your ideal new home. Third if your credit will allow you to borrow funds to buy your new home before you sell your old one (bridge loan), consider buying first. Fourth, put contingencies on both the sale of your current house and the purchase of your replacement home offers.

Lengthening the purchasing timeline. Sellers should begin looking for their new homes before they put their existing house on the market. If you are working with a buyer's agent, explain your approach to them so they don't get the impression that you are wasting their time. At this point you are looking for one or two neighborhoods to target. I recommend that you find four or five houses that you are interested in pursuing if they are still available when your house sells. I also recommmend that you don't fall in love with one house at this point since it may be sold when you are ready to buy. You want to keep your options open so you aren't disappointed if one or two of your finalist homes sells.

Have your agent set up these four or five finalist homes on your Multiple Listing Service (MLS) so you receive an automated email update if the status of any of these homes changes. This assumes that your area MLS has this alert capability. As the status of these homes changes, you can find some replacement homes for your short list. With this approach when your home sells, you just have to decide among the finalist homes instead of starting your home search from scratch. This approach can work well in an area where there is an adequate amount of home inventory on the market (buyer's market) and not so well when available homes are in short supply (seller's market).

Move To Temporary Accomodations. Many buyers choose to delay the new home search process until after their current house sells and they don't mind moving twice. First, to short-term housing and, second, to their new home. This approach can work successfully for the seller/buyer who doesn't have much time to devote to looking for a new home and to sell their current home at the same time. It also works well for single sellers, those who don't have children, sellers who aren't afraid to let movers handle their furniture multiple times, and sellers who are relocating to an unfamiliar area.

Talk to your loan officer about a bridge loan. Many sellers with good credit are not aware that they may be able to purchase their replacement home first and then complete the sale of the current house when they find the right buyer. This approach may work if the seller/buyer has enough equity in the house they are selling, enough cash to make both loan payments, or adequate income to qualify for both loans. Talk to two or three loan officers about this option since it could be the least stressful solution.

Ask for contingencies for both the sale and purchase offers. The seller should request a contingency from the buyer of their house that allows the sale to close when the seller closes on their replacement home. The seller (now buyer) should also ask for a contingency for the purchase of their replacement home that says they will close on the purchase when their current house sells. This way the seller/buyer is protected on both transactions. It must be understood that this two contingency approach will probably only work in a balanced market.