Financing a trade-up move is far more difficult now than it was before the economic meltdown of fall 2007. Today’s guidelines require such buyers to qualify to carry two mortgages, to have verifiable income and have enough cash for a downpayment.
Most of today’s repeat buyers can’t qualify to carry two mortgages at one time. And they can’t come up with a cash downpayment without liquidating the equity in their current home. In most cases, this means they need to sell that home before they can buy the next one.
Offers contingent on the sale of another property haven’t been popular in many markets because they’re riskier than sales that don’t hinge on the successful close of another transaction. Even so, considering current financing constraints, sellers who don’t receive offers should consider a contingent-sale offer, but only under the right conditions.
From the seller standpoint, you want to make sure that the buyers are qualified to purchase your home and that they properly prepare and price their home to sell. If you receive an offer that is contingent on a home selling that is in a lower price range than your home, it might be worth the risk. Lower-priced homes have been selling more quickly than the upper-end homes.
HOUSE HUNTING TIP: Sellers need to take an active role in the sale of the buyers’ property to ensure that both transactions close. This means making sure that the buyers’ home is in good condition, shows well and is priced right for the current market. If the buyers need to sell their home for a certain price in order to buy yours and their price is higher than what the market will support, it’s a waste of everyone’s time to move forward.
Recently, the seller of a home in San Carlos, Calif., received a contingent-sale offer that was acceptable, but only if she and her listing agent had a say in list price of the buyers’ home. The buyers agreed and ended up listing their home at a lower price than they had been planned to ask. The buyers’ home sold quickly and both transactions closed. …CONTINUED
It’s more difficult when you’re dealing with out-of-area buyers. The buyers in the above example lived relatively close to the house they wanted to buy. It was easy for the seller to get information about an appropriate list price for the buyers’ house.
If the buyers are moving from another area, your listing agent needs to contact the listing agent of their home and obtain pertinent information before you accept the offer. The buyers’ listing agent should provide recent comparable sales justifying their list price.
Find how long the listing has been on the market at the current price. How long has it taken similar listings to sell? Are there recent comparable sales that closed in the last three months that an appraiser can use to affirm the price when the listing sells? How much competition is there on the market? Are the buyers flexible on the sale price of their home?
Sellers can protect themselves to some extent when they accept a contingent-sale offer by including a release in the contract that allows them to continue to market the home for backup offers. If they accept a backup, they then notify the primary buyers that they need to remove their contingent-sale contingency or withdraw from the contract.
A contingent sale, even with a release clause, can slow down the marketing activity of your home, unless the inventory of similar homes in your area is very low.
THE CLOSING: That’s why you need to make sure the buyers’ home is salable before you accept an offer.
Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide."
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