Can you afford another home

Every day hundreds of people struggle with the dilemma of what to do first… Sell their home and then buy one, or buy another home and then sell theirs. Each method has its own risks. However, there is usually one option that will work best.

Take a look at a fairly traditional couple, Frank and Betty. They must decide which option to use: Sell their existing home first; or buy a new home first and then sell their existing home.

Frank and Betty knew for some time that they would be selling their home on Clearwater. They had purchased it just after they were married and now they were outgrowing it. They loved their present neighborhood and wanted to move to a similar area. They had made many improvements to their home. Everything was in perfect condition, but the home was just too small now that they had children. They had their Realtor, David Elsey, stop by and give them a value on their home. David looked through the home and noted all the improvements they had made within the last five years. He estimated the value of the home, and advised Frank and Betty that it would probably sell within 30-60 days. Encouraged by this, Frank and Betty asked David to keep an eye out for homes in the Oak Hollow area. Specifically, three or four bedroom homes with fireplaces. David began sending them Oak Hollow listings from his computer, and they would visit open houses in the area. Occasionally Frank and Betty would schedule a private showing with David to see the inside of a home or two. They began to get a real feel for what was available. Over a three-week period, Frank and Betty saw a number of Oak Hollow homes that they liked.

However, they didn’t find the perfect home. Perhaps if their home on Clearwater were already sold, one of the Oak Hollow homes would have been more appealing to them. It would have been much easier for them to make a decision. At David’s suggestion, they visited their Lender and obtained a “Preapproval Certificate.” David explained that this was their approval for a new home loan. This certificate would show a seller that Frank and Betty were qualified to obtain a loan. It would make any offer more appealing to a seller. Frank and Betty now knew they could afford to move. However, because they didn’t have to move; because there was no urgency, they decided not to put their home up for sale until they found the perfect new home. Frank and Betty were worried about selling their home before finding another. They were concerned that since their home was so nice, it would perhaps sell a little too quickly. Then they would have to make a fast, or even a rushed, decision on a new home. They were afraid of having to compromise if there was nothing out there that was just right for them. So they chose to keep looking, instead of listing their home. They visited more open houses and they drove by almost every new listing Joe sent them. On weekends they drove through Oak Hollow and other similar neighborhoods just to look, see and feel the areas. They always came back to Oak Hollow because it was their favorite area. They liked the schools and its proximity to the highway. It was a decent distance to both of their jobs. Each week they received a packet of new listings from David that his Multiple Listing Service computer search had turned up. One day, Betty opened a packet of listings from David. Inside were two brand-new Oak Hollow listings. She drove by them, and thought they both had possibilities. Betty discussed both listings with Frank that evening. They decided to call David and arrange to look at the homes that evening. That evening their lives changed. They found the perfect Oak Hollow home. It was gorgeous! With everything that they had hoped for – and more. The only problem was the asking price. It seemed to be about 10% higher than other similar homes were selling for in the area. Even allowing for the perfect condition, the most they could justify offering was about 5% less than the asking price.

Frank and Betty had David prepare an offer that evening for 5% under the asking price. They felt it was a very reasonable offer. Of course, since their home wasn’t even for sale yet, they had to make the Oak Hollow offer “subject to” the sale of their home on Clearwater. In other words, they wanted the Oak Hollow owner to remove his home from the market until their home on Clearwater sold.

Frank, Betty and David were convinced that their home on Clearwater would sell within 60 days. Therefore, they worded their offer to ask the seller of Oak Hollow to hold his home off the market for 60 days. That would give them the necessary time to sell Clearwater. According to the “subject to” clause, if their home on Clearwater did not sell, they would not have to buy Oak Hollow. Everything would work in their favor because they would not lose any money. They had no risk.

The next day David presented the offer to the Oak Hollow Realtor, Sandy Duncan. He explained to her how perfect Oak Hollow was for Frank and Betty. He gave her a copy of Frank and Betty’s Pre-approval Certificate. Most importantly, David took great care to share with Sandy all the details of Clearwater- how perfect it was. He told her they would list the home “right on the money” to make sure it sold fast. Joe also told Sandy that he was convinced Clearwater would sell in two or three weeks at the most. He said that even though the offer was “subject to” the sale of Clearwater, there was very little risk to the Oak Hollow owner.

Sandy seemed very positive about the whole offer. She promised to meet with the Oak Hollow owners that evening. David called Frank and Betty to tell them that he thought things went well, and to keep their fingers crossed. Sandy called David back the next morning with bad news. Even though Frank, Betty and David felt strongly that Clearwater would sell within 30-60 days, the owner of Oak Hollow was afraid of removing his home from the market for any length of time. He wanted some “shouldering of the risk” by Frank and Betty. The Oak Hollow owner felt that he was being asked to take all of the risk. If Clearwater did not sell in 60 days, Frank and Betty would walk away Scott-free. They would loose nothing – it wouldn’t cost them a penny. However, Oak Hollow would be off the market for 60 days of prime selling time. The Oak Hollow owner knew he had one of the nicest homes in the area. He was sure that Oak Hollow would sell within 60 days. He just couldn’t see any benefit to taking it off the market and “hoping” that everything went as planned with Frank and Betty’s home. Also, the Oak Hollow owner further observed that if he accepted Frank and Betty’s “subject to” offer, he couldn’t make any definite plans. He had no way of knowing for sure if Clearwater would sell, so for 60 days he would be “in limbo.” He did not want to be in that position. The Oak Hollow seller had a whole different perspective of the proposal than did Frank and Betty. He worried about, “What will I do and where will I be if things don’t work out?” All Frank and Betty could see was, “It’s a 99% sure thing… just give us a little time and we’ll work it out.”

Based on his concerns with the proposal, the Oak Hollow owner indicated to his agent that he would consider one of the following options:

Option # 1: He would take Oak Hollow off the market and hold it for 60 days for a non-refundable deposit of $3,000. The $3,000 would apply to the purchase price; but if the sale did not close within 60 days, Frank and Betty would forfeit their $3,000 to the seller. This type of arrangement would shift some of the risk to Frank and Betty. The amount of $3,000 seemed to be a reasonable figure for the seller. This would cover his loss if he held his house off the market for 60 days and then had to start all over.

Option #2: He would agree to sell the home to Frank and Betty at the price they offered. However, he would reserve the right to keep his house “on the market” and sell it to any other buyer who came along in the meantime. If Frank and Betty could sell their home before another buyer came along, they could get it.

Option #3: He would agree to hold the home “off the market” for Frank and Betty for 30 days, but he wanted the full asking price. This would be his compensation for holding the home off the market. Under this option, Frank and Betty would be under no risk if their home did not sell. However, they would have to pay a higher price to get the home they wanted.

Frank and Betty talked to David about the three options. None of the options were what they had hoped for. David explained that the seller of Oak Hollow wanted to know with a strong degree of certainty that if he took his home off the market it would be sold. The first option would allow him to receive reimbursement in case Frank and Betty’s home did not sell promptly. With the second option, he could keep the house listed; and he wouldn’t lose any time if Frank and Betty couldn’t purchase it. The third option would allow the owner of Oak Hollow to receive the full asking price. In exchange he would keep the home off the market for 30 days. The owner knew Oak Hollow was a beautiful home in a great location. He knew there would be other buyers that would love his home. In other words, he knew Oak Hollow would sell quickly, at a good price. He didn’t need to get involved with hoping someone else’s home would sell.

“But I don’t know if I want to risk $3,000 if my house doesn’t sell,” said Frank, referring to Option #1. “What if our home doesn’t sell within 60 days? Is it worth risking $3,000 to get Oak Hollow?” Frank scratched his head. “And I know I don’t want Option #3! As nice as Oak Hollow is, it’s not worth the full asking price!”

“But if we don’t take Options one or three,” observed Betty, “we’re stuck with Option #2 – and Oak Hollow will probably sell before we can get our home sold.”

“Or, we have to pay a high price or risk a substantial deposit to hold it,” replied Frank.

After much consideration, Frank and Betty decided that they just weren’t ready to risk $3,000. Nor were they willing to pay the full asking price. So they took Option #2. Joe listed their home on Clearwater the next day.

Three days later the phone rang. It was David. “Oak Hollow sold last night for the same price you had offered. The buyer of Oak Hollow listed their home several weeks ago and it sold last week.”

Betty’s heart sank. All along, in the back of her mind, she had known that the odds of them selling Clearwater before Oak Hollow was sold was an outside chance at best. However, she had already been living in Oak Hollow in her dreams.

When they had started looking for homes, Betty hadn’t realized that there would be this much stress involved. It was almost enough to just forget the whole thing, but they had put off the decision too long already -Clearwaterwas just too small.

That evening Frank and Betty talked about what was really important. They called David and asked to meet with him the following day. “David, we need to sell Clearwater,” began Frank, “but we just don’t know what to do if we can’t find anything we really like once it sells. We just don’t want to be pressured into buying a home that’s not right for us in the short amount of time that we’ll have.”

“Well, let’s take an objective look at where you are,” said Joe. “You’re not the first clients I’ve had that have been in this situation. Let’s look at what usually happens.”

David went on: “We can list your home for sale with the stipulation that you can remain living there for up to 60 days after the closing of the sale. Most sales close 30-40 days after the offer is accepted. This would give you about 90 days, perhaps longer, to find another home. It’s interesting, but the house you will eventually buy is probably not even listed yet. There’s a good chance that the houses listed for sale now, the best buys, will probably be sold by the time your home on Clearwater is sold,” said David.

“Why is that?” asked Betty.

“The good ones sell fast,” said David. “Most of the nice homes listed at fair prices will probably be sold in 30 days. So, if your home sells six weeks from now, there will be a whole different group of nice Oak Hollow type homes for sale.”

“But how do we know for sure that there will be a home we really like?” wondered Betty.

“Well, let’s look at it this way,” replied David, “you’ve been looking at homes seriously for about three to four weeks. You’ve seen a number of homes in your price range that you like. You found one that you were in love with.”

David continued, “It’s been my experience that when your home sells, you will find the right one. While there is no way I can predict what homes will be for sale, I can predict that there will be a different group of homes for sale. One of them will be right for you.”

“But what about the prices?” asked Frank. “What if there is nothing that we can afford?” To which David answered, “What I hear you saying is fear of the unknown. It’s difficult to make a move without knowing exactly what lies on the other side of the horizon. However, there is no way to completely eliminate all risk and still get a good value. As a matter of fact, we haven’t talked about the biggest benefit of selling your home first – and that’s the power of cash negotiation.”

“I’ll continue sending you information about Oak Hollow homes until your home is sold. You’ll become even sharper about the market. When your home sells, you’ll be one step ahead of the great majority of buyers out there. You will have a tremendous edge. Remember, you’re not the only family looking for a well-priced, nice home in the Oak Hollow area. When an attractive, well-priced home is listed, you’ll be one of many who want it. Since you’ve done your homework, you’ll be able to move more quickly and ‘pick the pear’ before anyone else gets it.”

“What’s more is that with your home sold, we’ll be negotiating from a position of strength. Any offer you make will be very seriously considered, because it’s like cash. Your home will be sold, so there will be little risk for the seller to deal with because you’re already pre-approved for a new loan. I’ll be able to bargain on your behalf even more effectively with a seller. I’ve helped many buyers get really good deals using these techniques.”

Frank and Betty decided to take David’s advice. Four weeks later their home was sold. David began updating Frank and Betty daily with all the new listings on the Multiple Listing Service computer. When a new listing would come through, Frank and Betty knew about it the day it was on the computers. They were often the first people through the new listings. They kept meticulous notes about values and features. They had notebooks full of notes. Two weeks later David called with the news that another Oak Hollow home was listed for sale. The home very closely matched Frank and Betty’s specifications. The price seemed to be right on the money. David faxed the Multiple Listing Service sheet to Betty at her office. On her way home from work that night, Betty drove by the new listing. It was gorgeous on the outside. She called David and Frank from her car.

A few hours later, David finished writing the offer. Frank and Betty had decided to make an offer of 5% below the asking price. They were prepared to pay at least $2,000 more than their offer because the home was perfect.

The next morning, David called with good news. Their offer had been accepted as written. They got the house for $3,000 less than they would have paid!

By selling their home first, Frank and Betty put themselves in a stronger position when it came to making a purchase. They could negotiate better, because there was very little risk involved for the seller. Frank and Betty put themselves in a position where it was very easy for a seller to accept their offer and ended up with the home of their dreams.

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