Your family has grown, you have more money now, and you want to upgrade to a bigger home.
Maybe you don’t like your neighborhood anymore and want to move to another.
Maybe the kids have left and you want to downsize to a smaller place to save money or even move to a sunny location to get away from harsh winters.
Whatever the reason, buying and selling a home is a common occurrence.
Do You Like Money?
This article assumes that your primary concern is to make and/or save money. If you’re a billionaire and money is of no concern, then this article ain’t for you. If your primary concern is that you’re comfortable and don’t mind sacrificing some money, then again, this article isn’t for you.
First things first, talk to a lender and a realtor. There’s no point in looking at pretty pictures of houses on Zillow when you don’t know what your house is worth, nor do you know what you will potentially get pre approved for.
Here’s an overview of the steps you need to take:
- Get pre approved for a loan on the new house (lender)
- The last thing you want to do is sell your home only to find out you can’t buy the home you really want. Always work with a lender that is local to the city you’re buying in.
- Get your existing home ready to sell (realtor).
- When the home is under contract with all contingencies satisfied, then you can focus on the buy side.
- Look at potential homes that are within your pre approval amount (realtor)
- Close on the current home and hopefully the new home shortly thereafter.
You are in Control – Maintain Leverage
Most people go about this the wrong way. It’s natural to get emotional and there are so many people telling us to buy that beautiful forever home you see on HGTV. Stay focused, this isn’t a choice over what restaurant to go to, you’re likely dealing with your largest asset.
Don’t put yourself at a disadvantage. Don’t put yourself in a position of weakness. Maintain negotiating power and maintain leverage. Otherwise, it could cost you a lot of money. There a few ways to go about this process.
Most Profitable Way to Sell Your Existing Home and Buy Another Home
This is the most profitable way to go about it. It is also potentially the most inconvenient way to do it.
When you and your realtor are not in a rush to sell your existing home because you have a deadline for your job start date in a new city, moving to a military base, start of the school year in a new location etc…you maintain the most leverage.
You don’t have to accept the first offer on your home if it’s too low.
You don’t have to rush to buy a home you otherwise wouldn’t buy, simply because you’re running out of time.
You will also be a stronger buyer and can take your time and negotiate more effectively without the pressure of having to move somewhere, anywhere as soon as possible.
If you make an offer on a new home with the added contingency of being able to close on your existing home, you are a weaker buyer. Sorry.
Think about it from the seller’s perspective. If they had two similar offers, but one of them had the added contingency, you would likely go with the “cleaner” offer that has less risk. This is the #1 problem with trying to buy a home when you haven’t yet closed on your existing home.
Most Comfortable Way to Sell your Home and Buy Another
Maybe you’re on a time deadline. You can’t afford to NOT be in a certain location by a certain time. This is usually the most common situation unfortunately. It usually ends up with you having to make some sacrifices and/or tradeoffs, which is ok. That’s what this business is about.
Usually, you sacrifice the best location for a bigger property, or vice versa. There’s usually a middle ground that works for everyone. However, don’t make these two common mistakes.
1. Financing
Don’t start looking for a new home without first getting pre approved. You’re only setting yourself up for failure. A realtor can let you know what the market value of your home is by running a Comparative Market Analysis (CMA).
This will give you a rough idea of what your home could sell for on the open market. From there, the realtor will help you calculate how much money you will walk away with from the deal, based on your current equity in the home.
Remember, you likely don’t own 100% of the home, so you won’t get 100% of the profit.
However, if you do own your home free and clear, or have a significant amount of equity…then you’re awesome and you have more flexibility! You may not need the proceeds from your home sale to purchase another one.
You may want to work with a lender to get a HELOC (home equity line of credit). This allows you to pull the equity out of your house. You can take your time to buy another home and take your time selling your existing home as well. You maintain maximum leverage and control.
2.Becoming a Buyer too Soon
Don’t go under contract on your new home without the first one selling, or at least being under contract with all contingencies removed.
If you’re scared of losing out on that new home, you will find yourself doing anything to close on your existing home, including lowering the price and/or crediting the buyers of your existing home. In other words you will be losing negotiating power and/or money.
You’ll get frustrated when your existing home takes too long to close due to inspections, appraisals, title work, underwriting etc…every day that passes will put you under more pressure. You will likely be frustrated and make an already stressful process that much more stressful and annoying.
The Move
There’s no getting around it. Moving sucks. Trying to coordinate when the first house will close, when you can move to the next house, packing and unpacking, finding movers…it’s exhausting, especially if you’re relocating to a place far, far away.
The best thing you can do to give yourself more time is to negotiate a rent-back clause from the buyer of your current home. This essentially buys you time needed to move on a more comfortable timeline. Hopefully, you’ll only have to move once.
Communication is of the utmost importance, particularly if you’re working with more than one agent.
That’s it. No fancy conclusion. Straight to the point. Visit our homepage if you need a realtor.
If you’re not thinking about a move anytime soon (within the next 6 months or so), relax, you have plenty of time and there’s really no need to work with a realtor asap.
This post was inspired by David Greene’s SKILL book. Check it out if you want the agent’s perspective
