Oftentimes, I share real estate information from the perspective of either the buyer or the seller, but what if you’re both? Unless you’re a first-time homebuyer, chances are you’ll need to sell your current home to fund the purchase of your next one, and that complicates things.
My first piece of advice is to forget about trying to time the market. If it’s a seller’s market, you’ll get a good price for your current home but pay more for your new one. If it’s a buyer’s market, the opposite is true. Basically, it all comes out in the wash, so if you want to sell your current house and move directly into your new one, don’t base your decision on whether home prices are up or down.
If you’re wondering whether we currently have a seller’s market or a buyer’s market, here’s how to know: When there’s about a six-month supply of homes on the market, it’s considered a neutral market. More than six months is a buyer’s market and less is a seller’s market. As of early December in inland Mendocino County, it was leaning toward a seller’s market with about 3.7 months’ worth of inventory.
If you are in a position to sell your current house and buy a replacement home much later (after a year abroad, for example), then you can be a little pickier about market conditions, waiting to buy until a buyer’s market is in effect. Here are some more common scenarios you may face if you want to sell your current house and buy a new one.
Making an Offer Before Selling Your Current House
If you find your dream home before selling your current house, you’ll need to figure out the finances. If your offer to buy the dream home must be contingent upon the sale of your current house, your offer will be less attractive, so you may need to increase the price.
If you have enough cash for the down payment and closing costs on the new home without selling your current one, you could put in an offer without contingencies—but if you do not have the income to support two homes, a lender won’t approve your home loan.
If you plan to rent your current home to pay your mortgage on the dream home, that can work, but be aware that if you want to rent your current home only until you can sell it, the lender will decrease the estimated rental value. Lenders know that it’s much harder to find a renter willing to keep a house in tip-top shape all the time and then be happy about moving out as soon as the house is sold.
Selling Your House Before You Find Its Replacement
If you plan to sell your house before you identify the one you want to move to, different challenges arise. The risk shifts from you to the prospective buyers. If you can only accept a purchase offer contingent upon finding another place to live, the prospective buyers may not want to stick around. At the very least, they will probably want to be compensated for their trouble in the form of a lower purchase price.
If you remove the contingency related to finding another home, you may get a higher price but end up spending the extra income by moving twice (once to a rental and once to the home you eventually purchase) and/or by paying to store all your belongings until you find your dream home.
Ideally, you’ll be able to find the house you want to buy and line up the timing of the escrows so you can move from your current house to your new home without the expensive middle step of renting for a while.
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.