You're moving. For whatever reason (and there are countless causes), you need to pack up and move in -- all at once.
Of course, the ideal scenario would be to buy and sell simultaneously, but such timing is never guaranteed. Most homebuyers will need to decide whether to buy a home and then sell their current home or to sell their current home and then look for a new one. If you're contemplating a move, consider the pros and cons of each strategy.
Buying a new home first can have its advantages, especially if the house is that once-in-a-lifetime find. But to get the property you want, you will need to know how much equity you'll need out of your present home and have an established sale target date. If your home doesn't sell by the time you close, you could consider the option of renting it, which would allow you to hold out for the best offer.
On the downside, you could end up with two houses. To pursue a buy-first scenario, many people use their home equity line of credit as a "bridge" or "swing" loan to provide for the new down payment. However, to qualify, homeowners generally need a sizeable income. Even if you qualify, the stress of owing on three mortgages (the old mortgage, the bridge loan and the new home mortgage) might force you to sell your property at a lower price than you hoped. Keep in mind that market conditions change. In the end, you don't know how much you'll get for your present home.
The less stressful scenario calls for selling your home first. It's easy to understand why: You know just how much you can spend on a new place, you avoid carrying three mortgages, and you won't require a home-sale contingency, which may make negotiations easier. The new owners may agree to a long closing or a rent-back option so you can take your time, look around, and buy the house that's just right for you.
It's worth noting a few disadvantages to selling your home first. You may feel great pressure to find something fast and even settle for a less-than-ideal property. You may require interim housing, which could be very stressful if you have to stay with family or friends for an extended period. Should you decide to rent, it may be difficult to find suitable housing, especially if you have pets. In either case, furniture would have to be moved twice and possibly stored long term. If your house-hunting efforts are focused on your old community, selling first may also involve paying tuition to the former school district so your child can continue attending classes there.
Buy first or sell first? How can you choose between the options? First, assess your financial condition. Is it healthy enough to withstand a buy-first scenario? How well do you handle stress? Do you have the resources to manage three mortgages and the added responsibility (as a landlord) that comes with renters? If you sell first, can you adjust to interim accommodations? Would they be practical for the long term?
Answers to those questions are not simple, and arriving at the correct one takes concrete planning and often the guidance of a Realtor. Consider the case of Mike, a married father of two who recently found the perfect home for his family and needed to outbid five competitive offers, all delivered on the same day as his. The entire transaction was completed in just one week. With the frenzied transaction now in the scope of 20/20 hindsight, Mike says, "Looking back on it, we did everything backwards." But the difficulties are inherent to the process, Mike says. "It's like patting your head and rubbing your belly at the same time, while blindfolded and balancing on a high-beam," he jokes.
When Mike spotted "a great house that fit all of our criteria" Uptown, gaining 500 square feet just a few miles from his former residence, there was time only for action, not thought. "We really wanted that house, and we had to bid instantly," Mike says. "And since the bids for the house were so competitive, we had to put together a really attractive offer to make sure we got the house. So we needed money from the sale of our old house for the down payment."
Aiming for a solid 10 percent down payment for the new, four-bedroom, two-and-a-half bath home's total price tag meant the old house needed to be sold. Fast. The end result cost Mike a considerable amount of money. "We were not ready to sell the house; we were not ready for the inspectors to come check out our house," Mike says.
What the inspectors found was typical for an older home, especially in New Orleans. Settling had caused some structural problems, in addition to some concerns with the sewage line and existing electrical work. "In the contract, we ended up having to give them credit for work that needed to be done," Mike says. "If we were aware of those conditions in the house -- and had time to deal with them -- we would have been much better off. At a conservative estimate, had we put roughly $5,000 to $10,000 worth of work into the house, we could have sold the house for $20,000 more."
The time crunch was another money-draining factor in Mike's move. In a booming real estate market like the one New Orleans has enjoyed for several years now, low interest rates propel high volumes of transactions. Just as there were many bids for Mike's new home, his old home received three bids immediately after it was put on the market. Yet, the family's top priority "was finding someone that would close on the same day" as their buy, Mike says, rather than waiting for the highest offer. "If we had more time, we could have waited for more bids to come in, be more selective and probably make more money," Mike says.
To finance the deal, Mike followed the advice of his Realtor, who handled both the sale and buy for the family, and went from one 30-year, fixed-rate mortgage to another 30-year, fixed-rate mortgage. To swing between the two loans, Mike opted for what is known as a bridge loan, in his words "a payday loan." In the financing, he was able to use equity built up in his four-year ownership of his old home to cover his down payment. A bridge loan is very common in such deals, and to Mike the option was an obvious choice. "We had to make a down payment, and where else could we have gotten the money? A bake sale?"
One aspect Mike remains certain of is his use of a Realtor in the process. "We both work, we raise two kids, so the convenience of having a Realtor do a lot of the work for us was a big consideration," Mike says. "Plus, having someone hold our hand through the process and present the different options to us really took away a lot of stress."
Another reason to use an agent, according to Joe Paciera, a Realtor with RE/MAX New Orleans Properties, is "to avoid getting ripped off."
"When a buyer is trying to sell over a barrel," Paciera explains, referring to the owners' obvious need to make a quick sale, "people know he needs the money. The buyer knows he can get the house for less money if he drags out the process of the sale; he'll think, 'If I got him to go down $10,000 on the price, maybe I can stall him for $2,000 or $3,000 more.'
"But if you're using a Realtor, you have everything in writing. The Realtor makes sure of the fulfillment of the agreed contract and that there are penalties if those obligations are not met."
Another advantage of using a Realtor in the quick-turnaround process, Paciera says, is making sure you secure a solid loan. "Some of these mortgage companies are shams," he says. "Some companies have no intention of financing these houses. Your Realtor knows who's being used just for a fee and who is ready to provide legitimate services to you and the industry."
Avoiding a bad financial move and helping guide what can be a stressful process are two primary reasons for using a Realtor in quick buy-and-sell and real estate transactions, according to Sylvia Scineaux, an associate broker with Prudential that specializes in eastern New Orleans and Gentilly.
She recalls one story in particular: "An owner was not eager to sell her property -- she didn't even have a sign up -- when someone came up and offered X amount of cash. Thinking cash was such a fantastic buy, she didn't even consult an agent. The next week after the act of sale, [the new owner] put the house on the market for $100,000 more than he paid for it. He was canvassing for a deal.
"This is what a seller should not do -- make deals without professional consultation, as a market analysis from a Realtor will give you a solid ballpark figure for what you could sell your home for."
Scineaux has also seen deals that restore faith in humanity, citing one sale with a man who needed to quickly move his elderly mother into his house and out of the family home. An older couple was buying the home, and he spent money out-of-pocket to repair a gas leak to make sure it was safe. "It helps when you're a cooperative seller; this guy was sensitive about the environment this couple was moving into," Scineaux says. "And it worked quite well.
"Sometimes people refuse to do anything, and the deal just falls through," Scineaux adds. "You have impasses and no one will give. That's where the Realtor can make it easier. It's a very emotional issue often, and people can see the deal as all for one and none for the other. A Realtor with expertise can put a spin on the deal to where both parties see it's beneficial for both of them."