“I can sell my home easily – but where will I live?”
I hear this from homeowners all the time. They see lineups of buyers with subject-free offers in hand, offering the highest prices we've ever seen. But what's the use of selling your home if you aren't certain you'll find a new home?
It's a very real concern. I've worked with a lot of buyers who took many, many months before being successful with getting an offer accepted. It wasn't because they were doing anything wrong; they made competitive offers, above the asking price and usually without conditions. But the reality is that there are many other buyers able to do the same.
Renting may seem like a good interim option, but the rental market is similarly squeezed. You will see similar lineups for those units.
So, it's a fact: If you sell your home, there is no guarantee that you can find a new place to live before you hand over your keys to a buyer. (This is part of why there isn't more inventory – people are afraid to sell.) Let's discuss this situation and see if we can offer any advice to homeowners who need to move.
A False Solution: Find a Home, then List
A lot of people have contacted me about this situation, suggesting that they would like to have their home READY to list on MLS, but not actually listing until they have found their next home. This looks like an easy solution, but it's a “chicken and the egg” scenario for most people; they can't actually commit to buying a home, without already having a deal to sell their current one.
The reason is financial. Before committing in writing to purchase a home, you need to have confirmed that you ABSOLUTELY WILL have financing in order to purchase the new home on completion day. Most lenders will not provide you with that guarantee until/unless they know 100% that you will already have the money from your current home. In other words, you can't safely commit to a purchase until you have a “firm” (no conditions) offer on your current home.
(Many lenders offer “bridge financing” which allows you to access funds to purchase the new home before you have the money from your current home's sale – but most lenders require you to already have a firm contract to sell your current home before they will offer bridge financing – talk to your mortgage broker!)
I can hear the savvy people already: “No problem, if I find a home I like, I can just make an offer that is ‘subject to the sale’ of my current home. If my home fails to sell in time, I can escape the purchase contract – it's risk free.”
It is certainly true that this would remove all risk of your becoming homeless. However, you will never get that offer accepted in the current market.
To understand why, imagine you are a seller and five offers have been submitted to you. When there are multiple offers, it is typical for most of the offers to have no subjects. Some of them will be “subject to inspection” or “subject to financing approval” and those are sometimes acceptable especially if their prices are acceptable. But imagine how you would feel about receiving a “subject to sale” offer. Even if the price is highest, how confident can you be that your deal will fall apart when your buyer’s home fails to sell quickly? Or, your buyer may collapse the deal if they don't get “the right offer” for their home.
In my experience, a seller will prefer a subject-free offer even when a “subject to sale” offer has been made for $20,000 more.
It's not hopeless! There are plenty of people listing their homes under these circumstances, because the following options are available.
Some people are able to commit to a purchase without any assurances about the sale of their current home. This is something you might discuss with a mortgage broker.
This is the most common workaround, but it does carry some risk. It involves listing your home before finding a new one, but you indicate to all interested parties that you won't accept an offer that completes in the next few months. In other words, you would maintain a buffer period so that you have X months to find a home, increasing your chances of being successful at getting an offer accepted for a new home.
The problem with this solution of course, is that you aren't guaranteed to find a new home, even if you allow yourself a large buffer period. This method is most acceptable to people who tolerate some risk, or who have a plan B.
Find an Interim Home
You can find a temporary place to live, even if that means going somewhere else (a town with more rental vacancy, or even an inexpensive vacation destination). Of course this is not an option for most people especially if they are working locally or have kids in school.
Limit Your Search to Distressed Listings
As stated above, a seller will not consider a “subject-to-sale” offer if they have other offers or if they expect to get them soon. It stands to reason, then, that a buyer with a less appealing offer should restrict their activity to only those homes which are not currently competitive.
For example, they could ignore any listings that have been on market for less than two weeks. In the current market, a well-priced home will nearly always sell in the first week, barring major defects. Even if a full week elapses without a sale, the seller still has reason to expect that an offer WILL materialize soon, even if that offer will (probably) be a little bit under the asking price, or may have financing/inspection conditions. They will usually not be so desperate as to consider a “subject to sale” condition until at least 2-3 weeks have elapsed.
It's important to keep in mind that you will not be able to offer “subject to sale” AND with a low price in the current market. If the seller is open to a lower price, then instead of accepting your low-priced “subject to sale” offer, they will reduce their listed price (drawing renewed interest from buyers who do not need to sell their home first).
Posted by Gerry Thomasen on