Opinions and insights from real estate broker Rick Bosl

In part 1, we discussed the pros and cons of buying first and selling first. In part, we will look at how to protect yourself when you are trying to do both simultaneously. There are several options you can use in a contract to protect you when you are buying and when you are selling. Let’s look at the contingencies to use when you are the buyer of a new home.

Sale of Home Contingency

As a buyer, you can make your offer contingent upon the sale of your house. If you can’t sell your house, you can void the purchase contract with no penalty.

To make this work takes a little finesse. An offer with this type of contingency is not viewed favorably by a seller. In a strong seller’s market (think back to 2005), an offer with type of contingency would be dead on arrival. The importance of having a competent agent being able to make your case cannot be overemphasized. The seller on the other side of the transaction will want to see evidence showing  why they should take their home off the market and accept yours.

Settlement of Purchaser’s Property

This is similar to the sale of home contingency, but is further along in the sales process. Use this contingency when you already have your current home under contract. A seller will be more likely to accept a purchase contract when you already have your house under contract.

On the Seller side, you also have a couple options.

Contingent On Seller Purchasing Another House

This contingency will protect you as the seller from being forced out of your house with no where to go. This contingency will allow you to put your current  home on the market AND get it under contract, but still have the ability to cancel the contract if things don’t work out for your next house.

Obviously, you want to be careful how you use this contingency. Buyers might be a little hesitant to make an offer without some reassurance they are not wasting their time.

Post Settlement Occupancy option

If you need to sell your current place before settling on your new home, but would like a little breathing room to pack and move, consider using this option that allows to the seller to stay in the house for a short period (days or weeks, not months). The cost is usually the buyer’s pro-rated carrying costs – mortgage payment + taxes + condo fees (if applicable).

With all these contingencies and options noted above, there are more details that haven’t been discussed, such as time-lines, deadlines and penalties.

Unless you are a first time buyer, you have probably asked yourself ‘What should I do first – buy or sell?’ in regards to moving. I’ve helped a number of clients in this situation and my answer usually starts with ‘it depends’. It depends on a number of factors and this article will explore the pros and cons with each. Part 2 of this article discusses various ways to protect yourself so you don’t find yourself homeless.

Whether or not you buy first or sell first, you should do a little bit of both in tandem, meaning you should have some sense of where you want to move to and home prices in that area. You should also have some sense of what your current home is worth and how long it might take to sell (shameless plug – contact us for a free market analysis of your home). You should also be aware of the general market conditions – is it a buyer’s market, a seller’s market or a balanced market. For an overview of the Arlington condo market, visit http://www.arlingtoncondo.com/marketreport.html.

Financing

One of the first steps is to assess your financial situation. There are numerous expenses associated with selling a home, buying a home and moving. Do you need the equity out of your current place for a down payment on the new place? Do you have money set aside for closing costs when you buy? Talking to a lender might make the buy/sell decision very easy. You might need to sell your current place first to be able to qualify for a new mortgage.

Buy First

If you are fortunate enough to be able to carry two mortgages and have sufficient cash reserves for a down payment and closing costs, buying first might be the easy option for several reasons:

• Sellers are more likely to accept your offer if it is not contingent upon you selling your home first.
• You won’t have to worry about being homeless or moving into temporary housing.
• You have more flexibility on moving dates.
• When selling your home, it will be easier to show and you won’t have to worry about being interrupted every time a buyer wants to see it.

However, there are a few risks to consider:

• Your home might take longer to sell than you think and you could be carrying two mortgages for some time.
• Your home might sell for less than anticipated.

Sell First

For many people, selling first is the only option. You might need the equity out of your home for a down payment or you might not qualify for the new mortgage because of excessive debt ratios. The pros with selling first include:

• You won’t have to worry about carrying two mortgages.
• You can write an offer on a new place without a sale of home contingency, which makes your offer more attractive.

Of course, there are also some obvious risks:

• You might not find your next home by the time you have to move out.
• Your financial situation might change making you ineligible for the new mortgage.
• Mortgage rates could rise and make your new home out of reach.
• The market can shift and the available inventory can change quickly.

In part 2 of this series, I’ll discuss how to protect yourself when you are buying and selling simultaneously.

Existing Home Sales rose in March, as expected. U.S. home buyers closed on 7 percent more homes as compared to February.

Furthermore, versus March 2009 — a month many people equate to the low point of the U.S. economy — sales volume was up 16 percent.

“Existing home sale” is the technical term for a home resale; a home previously inhabited by a person.  It’s the opposite of a “new home sale” which is a sale of a newly-constructed home.

Existing Homes Data is tracked by the National Association of Realtors® and a closer look at the March data reveals some other interesting notes:

1. Year-over-year sales are higher for the 9th straight month
2. Real estate investors represented 19 percent of all homes purchased
3. First-time home buyers account for 44 percent of all buyers

Also worth noting is that the supply of available homes is down on a broader basis.  At the current rate of sales, the existing home inventory will be exhausted in 8 months.

Despite banks releasing foreclosures and REO into the market, that’s still one half-month less from February.

When supplies drops, home prices tend to rise. It suggests an underlying strength in housing that should support home prices through the next few months — especially as the home buyer tax credit finishes working its way through the system.

That said, real estate markets are local. You shouldn’t assume that what’s happening on the national level is also happening here at home.  Be sure to check with your real estate agent about local market conditions before making a decision to buy or sell.

Closing On Or Near Labor Day? Plan Ahead.

As the unofficial end of summer, Labor Day weekend is popular vacation time for many people.

And this year, with home sales on the rise and mortgage rates relatively low, early-September figures to be a popular closing date, too.

These points may appear unrelated, but there is an important connection between them.

Like workers in every other industry, employees of the mortgage, title, and real estate industries are just as likely to be taking time off on and around Labor Day.

For buyers with pending contracts, therefore, the closer that early-September closing date gets, the fewer industry folks that will be working to help close on your new condo. For sellers, be aware of possible delays right around the holiday.

The same goes for households in the middle of a refinance.

With less than 4 weeks until Labor Day, you can take steps today to prepare for other people’s time off.  Here’s a few of them:

1. Notify your lender of any planned vacation time between now and your scheduled closing.
2. Have Power of Attorney forms lender-approved and signed by all parties, if applicable.
3. Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable. Transferring funds can take several days depending upon the type of account and location.
4. Schedule your final walk-through far enough in advance to resolve any issues that may arise
5. Have your funds ready for closing at least 1 day early.

And, perhaps most important, fulfill your mortgage lender’s requests for additional supporting documentation within 24 hours of notice.  This includes requests for updated paystubs, bank statements, and tax returns.

The best reason to handle these tasks in advance is that, by the time Labor Day is around the corner, basic mortgage approval tasks will already take longer to complete — from clearing conditions to sending a wire.  Reduced staff means slower response times.

Stay ahead of the curve and help save yourself from potential headaches down the road.  And, if possible, avoid closing on the Friday before Labor Day and the Tuesday after.

On these days, staffs are the most lean of all.

Posted by Rick Bosl on August 12, 2009 | Tags: Mortgage Approvals

I came across this short little video that explains settlement costs in a very simple, visual manner. It probably oversimplifies the process, but it is a good intro for the first time buyer.

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Posted by: Rick Bosl, Associate Broker
Keller Williams Realty – Arlington