Avoiding The Trap

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In the almost 20 years since I’ve been a realtor, there’s one phenomenon that I seem to see happen over and over again. It goes something like this…The  Jones’s decide they want a bigger, nicer, better, smaller…whatever home. They then start looking, both online as well as at weekend Open Houses. It’s at that point that something strange happens…they kind of like a place! What follows typically is the inevitable phone call to either me, or to a lender I know who then refers them to me.

For some reason there’s this funny sort of common thread among these buyers who feel that they would like to make an offer on a new place before selling their existing place, usually via an offer contingent upon the sale of said place.  Why not? It’s logical and it sure seems less painful than the perceived alternatives…but what are those alternatives? Here’s a few:

1) The seller has plenty of cash on hand and doesn’t have to worry about selling their original place. There are certainly people like that out there…there just aren’t many of them.

2) The seller has a ton of equity in their original home which they can pull out and use for the new down payment and then sell the house later if they want to. This is occasionally possible but for folks moving up it’s difficult…particularly in this current lending environment. 70% loan to value is the rule now and often it’s hard to pay two mortgages as well.

3) You sell your house first. This idea seems to feel a tad intimidating to people because there’s always a fear that if and when they get an offer on their home they won’t be able to find what they want before it closes…and they’ll be rendered homeless.

Thus…the contingency offer. What this means is the buyer asks the seller to accept an offer that allows them to sell their original house before consummating the deal and closing escrow. The buyers feel safe because they feel like they’ve gotten the home they want. Herein lies the trap. The simple truth is that sellers don’t like contingencies…even the sellers who’re making the contingency offers don’t want a contingency offer on their place! There are just too many questions about the saleability of the buyers property! A seller who is willing to consider a contingency offer is certainly going to be far less flexible on price and terms than they would be with a non contingent offer. A buyer making this type of offer loses an awful lot of leverage by making this choice.

In my experience, selling your place first is the best, and most stress free choice. You’re not going to feel like a gun is at your head to have to sell in order to get the “dream house”. One of the biggest lessons most of us learned during the boom years was the fact that the “perfect house” comes up again…and again! In addition, once you receive the right offer you can always rent back after close of escrow, giving yourselves more time to shop for the new place. 90 days is not unheard of for an escrow and rentback combination and during that amount of time I’ve never seen a buyer be unable to find the right new place. Avoid the trap…be patient and sell first.

Comments

  1. Good point, I am always concerned about accepting contingent offers because it might scare away a buyer with cash in hand.

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