Is now the right time to move-up/move-down my home?

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Today’s move-up and move-down buyers face many challenges in the ever evolving real estate market. It doesn’t matter if homebuyers are looking for a larger home for their family with more yard for the children and dogs to play 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.

Since many homeowners once again have equity in their homes many are planning on selling their homes to buy another, as the local real estate market continues to appreciate.

Local market conditions can be both a blessing and a curse to the move-up buyer. The thought of limited inventory to select a new home from is not something to look forward to, yet when selling a current home homeowners will 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-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 selling of course, is financing. The Dodd-Frank Act with the Truth-in-Lending Act and the Real Estate Settlement Procedures Act Integrated Disclosure which took effect Oct. 1, 2014, has had limited success in helping to clear up how lenders interpret the federal law aimed at protecting consumers while maintaining the integrity of federally insured mortgages. Now more than ever, it’s critical to speak with the lender and investigate how a ‘Qualified Mortgage’ effects personal situations.

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.

There is more control on the selling side.

As a seller, there are two tools that can be used to make the process run smoother. First, when the home is listed have the agent report to the multiple listing server that the sale of the home is contingent on the homeowner being able to find their new dream home. This contingency will allow escrow to coordinate a dual simultaneous closing.

The other option, when an offer comes in on the sale of the home, a good real estate agent can negotiate a seller rent-back agreement. This negotiation allows the buyer to close escrow on their home and take title while allowing them to remain in the home until they can move into their 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. 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 buyers 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 investment property, not allowing owner-occupied financing. In today’s competitive market most buyers will be willing to cooperate, allowing the seller to find their new home and close escrow if the home is priced right and is in great condition.

Consider these buying techniques.

As a move-up buyer with a house to sell, a smart move is to limit the search to homes that have been on the market or 30 days or more. While it is not a long time in a ‘normal’ market, the seller will no doubt be feeling anxious and probably 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 the contingent offer rather 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 a long escrow is sought, perhaps sweeten the pot with a little extra purchase price. By having any financing locked in, removing a loan contingency is another strong move that can work in their favor.

A seller may accept a 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’ the contract with an appropriate notice, giving them the opportunity to move forward with a contract.

As the buyer, having more flexibility in location may work 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.

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

Make sure that the home being sold 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 backup plan. Always keep in mind the infamous Murphy’s Rule, “If anything can go wrong, it will.” Sometimes “Plan B” turns out to be the best plan, especially if it works out.

Call (951) 296-8887 and get the information needed to make an educated decision.

For questions regarding available inventory and/or other real estate matters please contact, [email protected], Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Temecula Valley resident for 30+ years, Board of Director (since 2011) Southwest Riverside County Association of Realtors.

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