Do you sell first or do you buy first?

Mike Mason

Special to the Village News

The holidays will be here before you know it. Is now the best time to make the move? Today’s move-up or move-down buyers in Murrieta and Temecula face many challenges in this ever evolving real estate market. It doesn’t matter if you are looking for a larger home for your family with more yard space for the kids and dogs or downsizing to a smaller home with less maintenance. The challenges are all the same, juggling two real estate transactions at once. Not an easy task for even the most diligent homeowners.

Since many neighbors once again have equity in their homes, many are planning on selling one home and buying another, as the local real estate market continues to appreciate.

The local Temecula and Murrieta market conditions can be both a blessing and a curse to the move-up buyer. While the thought of limited inventory from which to select a new home is not something to look forward to, yet when selling your current home you’ll welcome the bidding war that buyers will generate for the right home in the right neighborhood.

The trick, of course, is in managing and even juggling simultaneous transactions – a task that can be both frenzied and daunting to even the most experienced homeowner. In the worst case scenario, not only can the dream home be lost, but the earnest money deposit as well.

While every seller and buyer is different and each has their own personal scenario unique to them, they still must answer the all important universal question, “Can I afford to pay two mortgages at once if I buy before I sell? Or do I prepare to move twice, if I sell before I buy?”

Should I stay or should I go?

The biggest issue about buying before you sell is of course, financing. With the newest provision of the Dodd-Frank Act that took effect in 2014, even today lenders interpret these new federal laws aimed at protecting consumers while maintaining the integrity of federally insured mortgages differently. Now more than ever, it’s critical to speak with your lender and investigate how a ‘qualified mortgage’ effects your personal situation.

Some move-up buyers will decide to not pay two mortgage payments and just go ahead and move in with friends or family or perhaps rent an apartment or other temporary housing, giving them more time to find and buy their new home.

In a seller’s market like Temecula and Murrieta real estate is currently experiencing, most sellers will not accept an offer contingent on the buyer selling their current home. However, a good realtor will have some creative options from their tool box of experience to make for a smoother move-up transaction.

Often, there is more control on the selling side.

As a seller, you have two tools that can be used to make the process run smoother. First, when you list your home, have your agent report to the MLS that the sale of your home is contingent on you being able to find your new dream home. This notice will allow escrow to coordinate dual simultaneous closings.

The other option is that when an offer comes in on the sale of your home, a good realtor can negotiate a seller rent-back agreement. This agreement allows the buyer to close escrow on your home and take title, while allowing you to remain in the home until you can move into your new home.

It is fairly common to allow the seller to remain in possession of the property for up to three days after the close of escrow without any financial consideration. After more than three days, a rent-back should be negotiated. While the amount of the rent is always negotiable, it’s typical to consider the buyer’s payment and add in a pro-rated share of property taxes, homeowners insurance and homeowners’ association dues, if any.

A rent-back payment is intended to keep the buyer whole and not create a profit center. The buyer’s lender may allow up to 60 days of rent-back; anything more and the buyer’s lender may consider the loan to be for an investment property, not allowing owner-occupied financing. In today’s competitive seller’s market, most buyers will be willing to cooperate, allowing you to find your new home and close escrow if the home is priced right and in great condition.

I offer some buying techniques.

As a move-up buyer with a house to sell, a smart move is to limit your search to homes that have been on the market for 30 days or more. While this duration is not a long time in a ‘normal’ market, the seller will no doubt be feeling anxious and probably be more willing to negotiate a contingency allowing the buyer to sell their home. The object will be to convince the seller to believe they are better off accepting your contingent offer than waiting for another buyer to come along. It should go without saying that a full price offer should be made with few other contingencies, and if you want a long escrow, perhaps sweeten the pot with a little extra purchase price. By having your financing locked in, removing a loan contingency is another strong move that can work in your favor.

A seller may accept your contingent offer with a ‘kick-out clause’ that will enable them to keep their home on the market and if a better offer comes in, they can ‘kick’ your contract with an appropriate notice, giving you the opportunity to move forward with your contract.

As the buyer, having more flexibility in location may work for you as well. While certain local neighborhoods turn homes quicker than others, there really are no bad Temecula or Murrieta neighborhoods. Allowing for some flexibility in location and even features can prove advantageous – without settling of course.

The devil is in the details, as usual.

The most important thing a move-up buyer can do is be prepared on every level. As we discussed above, having your financing in place is critical.

Make sure that the home you’re selling is in the best possible condition, staged to appeal to the widest audience and priced for a quick sale.

The final consideration every move-up buyer needs to focus on is a back-up plan. Always keep in mind the infamous Murphy’s Law, “If anything can go wrong, it will.” Sometimes “plan B” turns out to be the best plan, especially if it works out.