This week’s Q&A column is sponsored and written by Peter Crouch of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Peter at 703-244-4024 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: Chicken or egg? Do I buy first or sell first?
Answer: One of the biggest challenges in this — or mostly any market — is the question of sequence. Whether moving up to a bigger home, downsizing, or moving sideways, there MUST be a plan, or success could be elusive.
The market this year seems poised for a repeat of last year. As a buyer, you must prepare your best offer for a property, since that seller may well receive multiple offers. Most buyers need/want their equity out of their current home in order to purchase the next. So, can you make that offer contingent on selling the house you are currently in — and be successful? Last year, most sellers would not accept a contingent offer.
On the other hand, as a seller, is it wise to put your house on the market, and accept an offer and a move-out date without knowing what your next property will be? That could be a recipe for camping out at Extended Stay America or at the relatives’ for quite awhile!
The issue is how to make that difficult problem as seamless as possible. That is where consulting with experienced professionals — a good real estate broker and lender — are crucially important. Here are some tips and strategies:
- The first step is to evaluate if you have an option for temporary housing — or even if you want to consider it. If you have local family, does it make any sense to go there for awhile? That would allow you to sell your current home and get your equity in the bank without feeling stressed about rushing into the next purchase.
- If that is not an option, you may want to market your home for sale — but with a request to “Rent-back” for up to 2 months after settlement. Since the average settlement takes between 30 & 45 days, that would give you almost 3-1/2 months total to then find your next home. You get your equity out at settlement (30-45 days), so you can then use it to make a non-contingent offer on the next home. Much better position for buyer-you, but a little risk that the right house does not come up even with the extra time.
- If that is tough to imagine, then a good local lender may be able to offer what is known as a “Bridge Loan.” This allows the lender to give you a loan to essentially take equity out of your current house before you sell it, and to use it for the down payment on the next house. In this scenario, you are a buyer first, and then you become a seller. This one takes a good bit of planning, and a very good local lender. It is not for everyone, but is certainly an option to explore.
Example: I have a current client for whom we signed a contract last August to purchase a condo under construction. We knew it would be ready this February, so we evaluated the options, and she was able to live with relatives nearby for several months. We sold her house in October (rather than waiting until the middle of winter), and she has her equity in the bank awaiting completion of the condo.
Another couple found the house they wanted to purchase, and we were able to qualify them for the new mortgage based on “imputed” income from savings and a temporary 401K loan. The 401K provided the down payment in this case (was easier than a bridge loan).
We also knew their existing townhouse would sell very quickly. So, they were able to buy non-contingent, and then sell their townhouse immediately, with matching settlement dates. The proceeds of the townhouse paid back the 401K loan. By the way, we knew they were looking at houses, so we had this scenario set up months before.
Everyone has a different set of circumstances, but the bottom line is it takes planning. You MUST set up a strategy with a good local lender and real estate broker — ahead of time.
Pete Crouch has been a licensed Broker in Alexandria for over two decades. Experienced in construction, finance and making things work, Pete often brainstorms with clients — months and even years ahead of a move. Pete also has a specialty in Mature Moves and will be a speaker at “Decluttering and Downsizing: Ideas from the Experts” at Beatley Library on February 6. Text 703-244-4024 or email [email protected] to register.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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