So, you’re buying and selling a home at the same time in San Diego County? It’s a scenario we see a lot. In fact, very few of our clients aren’t facing some kind of buy/sell timeline dilemma. Thankfully they’ve got options.
One of the services we offer our clients is guidance through complex transactions. At My Real Estate Buddy Offices, we see our value-adds as our years of experience, our local real estate knowledge, and our outside-the-box thinking.
Here are your five best options if you’re simultaneously selling and buying a home in San Diego.
OPTION 1: PAY CASH
Let’s get the most obvious option out of the way first. If you can afford to pay cash for your next home, it’s an option worth considering. Paying cash eliminates many of the timeline issues that plague most buyers and allows you to focus almost completely on finding the home of your dreams. With the flexibility of a cash purchase, you don’t have to worry about contingencies sinking your next purchase and you can sell your current home on your own time.
Maybe you want to completely move out of your current home and get settled in your new one before you take on the task of selling. Alternatively, you could choose to go ahead and list your current home once you have a contract on the new one without the financial pressure of worrying about when it will sell. The biggest difference between these two options is whether or not you think your current home would “show” better with your furniture in it. We have some thoughts on that…give us a call to talk specifics.
OPTION 2: QUALIFY TO CARRY BOTH MORTGAGES
If you can’t afford to pay cash (and most people can’t!), perhaps you can qualify to carry both mortgages at the same time. If you think this might be a possibility, the first thing to do is to contact your financial institution or mortgage lender to talk details. If you can qualify to carry both mortgages (usually just for a temporary period), you’ll be able to shop for homes without added pressure, only making a move when you’re able to secure a contract on the perfect house, not the right now house. This option saves you from feeling like you had to settle because you were forced to make a quick decision based on what was on the market at that specific moment in time.
Once you’re under contract on a new house, you’ll still work to sell your house as quickly as possible. Ideally, you’ll already be working with a qualified Realtor (us!) before putting in a contract on a new home so we can begin staging, discussing pricing strategies, and talk about your expectations. In San Diego it’s currently a seller’s market, it’s fair to expect your home to sell very fast. Outside of paying cash, qualifying to carry two mortgages at once – even for a short period of time – gives you the most flexibility.
But what if you can’t pay cash or qualify to carry both mortgages?
OPTION 3 – SELL YOUR CURRENT HOME AND FIND A SHORT-TERM RENTAL OR A PLACE TO STAY UNTIL YOU PURCHASE ANOTHER ONE.
This is the option most sellers find themselves discussing. In some ways, it’s a really smart option; in other ways, it’s a total pain in the you-know-what. Finding interim housing (a short-term rental, an extended stay hotel, corporate housing, etc.) allows you to concentrate on the sale of your current home and also gives you the freedom not to feel pressured to accept the first offer that comes along. Likewise, you’ll be able to take your time shopping for homes and find something you’re really excited about rather than settling for what’s available at that exact moment.
Now, the downsides are that you have to move twice. Even if you’re moving into a furnished rental, moving is going to feel at least a little disruptive to your life. You may have to sign a longer-term lease than you want to and factor in a cancellation penalty if you move out before it’s up. This is a particularly dicey option if you’ve got a ton of stuff, kids, pets, or anything else that makes you less “mobile.”
The question to ask yourself is, “If my home went under contract today and I had 30 days to move out, what are the chances my dream home would be available right now?” If you don’t think that’s a likely possibility, it might be worth the hassle of finding short-term accommodations to find a better house, long-term.
OPTION 4 – MAKE THE PURCHASE OF YOUR NEW HOME CONTINGENT UPON THE SALE OF YOUR CURRENT HOME.
In the state of California, we have a form called the “contingent sale addendum.” What this form does is allow buyers to go under contract on a home contingent upon the sale of their current home. Basically, it’s an out for buyers: If your home doesn’t sell, you don’t have to buy. If your current home doesn’t go under contract by the time the due diligence date expires OR it does go under contract but it falls apart, you’re still entitled to get your earnest money back.
That sounds nice in theory, doesn’t it? Unfortunately, in a seller’s market, it might be awfully hard to find a seller who’s willing to accept a contingency. These kinds of contracts aren’t as attractive to sellers because they don’t want their fate to be in your (and your potential home buyers’) hands! If the deal between you and the seller falls apart in the eleventh hour, they have nothing to show for it other than the relatively small due diligence fee you put up. Think about it. If you’re competing with a buyer who has no contingencies but the same offer as you, who’s going to win out?
If you must buy with a contingency clause, one way around the negatives is to offer a much higher due diligence fee than normal. This might make your offer more attractive to the seller, but you also need to understand what you’re risking. Your due diligence fee is basically non-refundable, except in some extreme circumstances. If the sale of your house falls apart, doesn’t close in a timely manner, or you never find a buyer, the seller of the house you were trying to buy gets to keep your due diligence.
OPTION 5 – GET A CONTRACT ON YOUR CURRENT HOME FIRST, IMMEDIATELY GO OUT AND PUT A CONTRACT ON A NEW HOME WITHOUT A CONTINGENCY.
This option poses the most risk to you. If you enter into a contract to purchase your next home with no contingencies attached, you need to consider a few things. It’s smart to ask for a longer due diligence period to give you a little extra time to close your current home sale in case the mortgage process gets held up. You ALSO need to disclose to the sellers on your Offer to Purchase contract that you need to sell your existing home before buying theirs; the actual contract will not be contingent upon the sale of your current home meaning that there’s less risk to the seller should things fall apart. They’re covered no matter what happens with your home sale.
Because there’s no contingency, you’re risking your earnest money and your due diligence fee if you have to back out of your purchase. However, you might be able to find a seller more willing to work with you in this situation because there’s a little less risk to them. A little less because as a buyer, you can back out of a home purchase at any time before closing – albeit out a little good-faith money.
Here’s an example of how you might structure this: You have a buyer for your home and you’re sure it will close on schedule. You give that buyer on your home a three-week due diligence period. You then find a home you want to purchase, negotiate a four-week due diligence period on that one (to give you a little leeway on your existing home contract), put down a respectable due diligence fee, and schedule a closing on your new home for 7-8 weeks out. In this case, the seller feels secure because you gave them a respectable due diligence amount and a shorter due diligence period. You feel secure because you’re giving yourself enough time to ensure your current home makes it through due diligence before the due diligence on your new house ends. If you’re going to go this route, you must have all your ducks in a row beforehand and have the assistance of a great agent.
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