Need to buy a house fast after selling yours? Don’t panic, here’s what to do
In fast-moving housing markets, many sellers worry that once they’ve found someone to buy their place, they won’t have enough time to secure another home for themselves.
And some people — especially those with families — would rather not move twice before finding a permanent home, said Cody Anderson, a real-estate agent with Re/Max in the Minneapolis area. Sometimes the fear of that scenario keeps them from selling altogether.
One idea to bat down that concern: Add a seller’s contingency to the contract that requires you find a new home of your choice to live in before closing.
It’s a cousin of a more commonly known contingency, one that home buyers add to a contract that requires they sell their current home before settlement. In competitive markets, as many are today, most sellers won’t accept offers with this contingency — not when there are plenty of others that come with no strings attached.
But in markets short on inventory, sellers have the upper hand, and may opt for a provision to ensure they won’t end up without somewhere to live at the end of the process. Getting a buyer for your house first also helps you set your budget before you start house hunting.
“Most people are worried about what they’re going to get for their home,” Anderson said. “Why not figure that out in advance?”
Here’s how it works: Anderson typically notes the seller’s desire for this contingency in the agent remarks of the listing. Eventually, the contingency is worded into the contract, noting the number of extra days the seller wants to find his or her next home, perhaps 30 or 45 days.
If after that time period the seller hasn’t found a place, the buyer can back out. But he or she would have the option of sticking around if still interested in the property, adhering to the seller’s timeline, he said. Turns out, there are many buyers who are fine with that stipulation, he said.
For a deal headed to the closing table soon, “the first-time home buyers didn’t even bat an eye,” Anderson said. “After a quick call with the buyer’s agent, I sent her the legal paragraph we needed in the contract. She sent the offer an hour or two later.”
The ability for sellers to use this technique is dependent on the strength of the local market, said Ralph McLaughlin, chief economist of Trulia, a real-estate listings site. “In a very hot market, that is something sellers could get away with. Sellers are probably less able to do that in flat or cool markets.” It also likely works best for starter or low-tier homes, where the buyers might be renters who don’t have a home of their own to sell, and therefore have more flexibility on when they can move.
Increased use of the contingency is due to an ongoing inventory shortage, said Lawrence Yun, chief economist for the National Association of Realtors. In June, there was 5.8% less inventory than a year ago, according to NAR statistics, “and one year ago, people said it was tight inventory,” he said. NAR doesn’t have statistics on how many people are using the strategy, but Yun said “it’s not a minuscule number.”
“Given the tightness of the market, people are coming up with creative ways and contingencies to move the market along,” he said.
Still, there are some who caution that this strategy could backfire and scare away potential buyers — regardless of the market in which the home is located.
Lynn Ikle, a real-estate agent with Redfin in Baltimore, advises against it — and would recommend her buyers not agree to a seller’s contingency as well. “You don’t know anything about this seller,” she said. “What if they’re super picky, and then you’re on hold?”
Instead, she recommends sellers ask for a rent-back clause if they’re concerned about timing. That means the sellers have the option to live in the home after closing, and agree to pay rent to the buyers for that period. Usually, rent is the cost of the buyer’s principal, interest, taxes and insurance for a month. In a competitive market, sometimes buyers offer the sellers free rent, to sweeten the deal.
Of course, Anderson points out that there can be issues with rent backs, too. In a worst-case scenario, the seller doesn’t want to leave the home after the rent period has expired, and has to be evicted. Still, with a rent-back strategy, buyers “know there will be a house at the end of the story,” Ikle said. “With the [seller] contingency, it seems wishy-washy.”
Another strategy some homeowners are taking: Getting a bridge loan to assist with purchasing a home, prior to selling their original home, Yun said. “They can buy and have two properties for a short period, and then sell the property, knowing that there is strong demand. Once they sell the property, they can pay off the loan,” using the proceeds of the sale, he said. Financially, it’s a riskier scenario, because if it takes a long time to sell, the homeowner could end up carrying the bridge loan for longer than expected.
But for some, the risk could be worth it, to win at the game of real-estate musical chairs — meaning they aren’t left without a roof over their heads. “People don’t want to be the last standing when the music stops,” Yun said.