Right now, people who want to sell their current home and buy a different one find themselves in a bit of a quandary. The market is hot and residential properties are selling like hot cakes, so sellers are understandably eager to get their property on the market. However, what do they do if their house sells, and they haven’t found a replacement? As is often the case in life, the options come with upsides and downsides.
It’s important to remember that although the current housing market is sizzling hot, it could start to cool by this afternoon. That’s just the nature of markets. So, if you can take advantage of the current market, recognize that it may be a limited-time offer. Also, regardless of which option you choose, you may be faced with increased property taxes, even if you’re downsizing. With these truths in mind, here are your options to sell and buy in this red-hot market.
Option 1: Contingency Sale
You can accept a purchase offer on your house with a contingency that states you will only sell after you’ve found a replacement home. The upside is that you can use the earnings from the sale of your current house as a down payment on your subsequent home, and you will only have one house payment at a time. The downside is that buyers may not be as interested in buying under those circumstances, which means they could offer a lower purchase price or simply abandon the agreement when they find a seller willing to hand over the keys more readily.
Option 2: Rent Back
Another option would be to allow the sale to go through, and then rent your house back from the buyers (who are now the owners) until you find another property that meets your needs. The upside is that the buyers benefit from a secure transaction, allowing you to get maximum dollar for your property. The downside is that you no longer own property in an escalating market. Prices may continue to rise during your search period, so the earning power of the proceeds from the sale of your house may decrease over time. Also, eventually, the buyers will, in fact, want to move into their new home.
Option 3: Rent Elsewhere
Similar to Option 2, if you sell your house and rent a different house for a while, you benefit from selling your house in a hot market; however, in addition to the downsides noted above, you now have to find a rental, which is no small feat, and you will have to pay to move twice (once from the home you owned, and once from the rental into your new home). Just so you know, Selzer Property Management, one of the biggest property management companies around, has zero vacancies right now.
Option 4: Couch Surf and/or House Sit
Rather than selling your house and renting from an unknown third party, you may consider imposing on family or friends to stay with them or to house sit until you find a replacement home. Pretend you’re in your 20s again and that staying in someone’s spare bedroom isn’t a massive inconvenience for you or them. The upside is that you have a place to stay while you search for a new home without a high price tag or deadline to leave. The downside is that your relationship could become strained.
Option 5: Buy Before Selling
Although I understand this is not always feasible, the best idea may be to purchase your replacement home before you sell your current residence. If you can afford a down payment and double monthly payment, buying the replacement home first mitigates many of the challenges noted above. Upsides of buying before you sell include only having to move once, finding a new house before prices go any higher, and not having to include a contingency on the sales agreement for your current home. Downsides are mostly financial—it’s expensive to own two homes. And there is no guarantee that your current home will sell for the price you expect. Be sure to discuss pricing with your Realtor before buying a new home that depends on getting a certain price for your old one.
If you have questions about property management or real estate, please contact me at email@example.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.