Basic real estate transactions present difficulties of their own. Buying while selling doubles that difficulty and places you in the middle of a ‘double deal’.
A double deal occurs when a home owner needs to sell their current home before buying their next one; therefore, creating two transactions that unfold simultaneously.
Timing is crucial in these situations. Inexperience and miseducation increase the likelihood of incurring expensive burdens such as renting or placing your belongings in storage until you find your new home.
Zillow reports that 71% of sellers are buying at the same time. We’ve found this percentage to be true as the majority of our clients do find themselves in this type of transaction.
I’m my experience, double deals have 3 crucial focal points:
1. Identifying your next home
Due to the many different routes you can take in these transactions, there isn’t an exact path to follow. There are, however, several decisions you can make to ensure everything happens in a timely manner.
First, you’re going to want to choose the home you’re planning on moving to before listing yours.
Beginning your buying process before selling diminishes the likelihood you’ll need to rent if your home sells quickly.
Then it’s important to decide whether the seller of the property you are placing an offer on is motivated. An unmotivated home owner can delay a transaction.
If a seller is still in the beginning stages of finding their new home they may suggest a post-occupancy agreement that allows them to stay after you’ve purchased for a period ranging from 60 to 90 days.
Including this contingency allows the seller to continue searching for their home without having to place their belongings in storage. It is possible to receive monthly rent from the seller for the duration of the agreement.
2. Selling Your Current Home
Now that you’ve picked your next home, its time to address the sale of your current one. Being aware of the current market climate will give you an idea of how quickly you can expect your home to sell.
In a buyer’s market you don’t hold the leverage. This kind of market is characterized by a high inventory of homes. As a result, buyers can and will be picky about price. Listing at a reasonable price that doesn’t sacrifice the value your home offers is the ultimate goal.
In a seller’s market, when the home inventory is low, you’ll hopefully have the luxury of entertaining several offers. Despite your price ceiling possibly being higher, you still want to consider listing at a reasonable price to ensure you’re not stuck paying two mortgages if the home you’re buying closes sooner than expected.
3. Putting it together (the in-between)
Don’t worry. Most people can’t afford to shoulder the cost of two mortgages. Ideally, you would have enough savings to carry you through the process. If you don’t, here are the options we’ve presented to our clients to handle the in-between:
HELOC (Home Equity Line of Credit): If your home has enough equity, you might be able to qualify for a HELOC. The benefit of using your equity allows you to exclude a “subject to Sale of Buyer’s property” contingency. This type of loan is paid out over a ‘draw period’ and is up to a maximum amount It differs fro a typical mortgage in that you don’t receive a lump sum at closing. You only pay interest on the amount you use.
Borrowing against your savings: With this option, a buyer can lend themselves a percentage of their 401k balance to fund the down payment for their new home. Certain restrictions might apply. If you plan to pay off the loan as soon as you close on your previous home you might avoid penalty costs. But you might also want to consider using the proceeds of your sale to pay down your new mortgage even further.
In a perfect world, the stars would align, money would grow on trees and you’d close on your old and current home the same day. Even though it doesn’t happen organically, it is possible to coordinate if communication between both parties is strong and consistent. Beyond that, having an experienced agent will ensure you avoid many of the difficulties most people face in these types of transactions.