Home buying/selling in a competitive market

[Susie]

We've long been on the fence about renovating vs. moving, and are currently leaning in the "move" direction.  I've only ever bought one house, so I'm trying to work through how best to approach buying and selling.

Our house is probably worth around $280k; we have a mortgage balance of around $195k.  So, we have about $85k in equity, plus about $30-40k in cash (previously earmarked for renovation, and without touching e-fund/etc.) that we can spend on a down payment + costs, for a total of $115-125k.  We're actively saving (as well as paying down the mortgage), so that number will creep up, the longer it takes to find the right house.

We're considering listings up to $510k, most are $410-500k, and they are going FAST.  One that I loved, was listed at $410k and got 6 offers in 48 hours.  We weren't sufficiently prepared, so we missed it.  I still rue that.  We're being extremely picky with what we might buy, so the options that come up are really few and far between.  Right now there's nothing, although it's slow season.

We have a realtor, and are working on prepping our house for sale and figuring out next steps.  We are under no external pressure to move, are moving locally, and are just upgrading from a starter home.  At this point we are not interested in having to rent a short term place and move twice with two tiny kids / remote school / WFH / covid life.  

We have a pre-approval for $425k with no contingency for the sale of our house, or $575k (or higher if we wanted, but we wouldn't spend that much) with a contingency.

A few factors:
- Our house will have a larger pool of buyers than the pool of houses that we're interested in.
- Our realtor says it should sell quickly.
- In order for us to make a serious contingent offer to buy a house, our house needs to be on the market.  
- I'm really hesitant to have the house on the market before we're really ready... but our readiness depends so much on the unknowable question of when a "right" house might come on the market.  Keeping it showing-ready is going to be a nightmare with kids who are 5 and 1.5, WFH, etc.

If you've done this.... do we list our house first, with a contingency for seller finding house of choice?  Or, do we wait to find the right house, and then list ours?  Any other advice/suggestions?

[sakura]

If you list first I think you should be prepared to settle on some of your wants (or have a temp move in between).

If you buy first I think you should have a plan if your house doesn’t sell right away. How many months can you float both mortgages? Will you rent it out?
When we were buying/selling we thought everything was going smoothly until our buyer backed out :/

In a competitive market a home sale contingency might not give you the advantage you need. What is the difference in demand between your no contingency number and your high number?

[Susie]

Jan 18, 2021 11:28:36 GMT -5 sakura said:

What is the difference in demand between your no contingency number and your high number?

What do you mean by this?  How fast houses are selling at the $425k vs. $500k+ price points?

[TR]

Based on what you've said about your house and market, I would make an offer before your house is on the market. If you fall into that $425K - $510K window where you need your house to be on the market for a contingent offer to be competitive, how quickly can your realtor get that done? Like, could you put in an offer and have your realtor list your house at the same time?

[sakura]

Jan 18, 2021 11:35:48 GMT -5 Susie said:

Jan 18, 2021 11:28:36 GMT -5 sakura said:

What is the difference in demand between your no contingency number and your high number?

What do you mean by this?  How fast houses are selling at the $425k vs. $500k+ price points?

Right, so generally you are making yourself less of an ideal buyer if you go with a $500K+ house with contingency vs 425 and no contingency, but are there less buyers in the 500+ range that would give you an advantage of going higher?

[clairebear]

So I'm a realtor in a similar market, homes are getting multiple offers within 1 day of listing. In your situation I would not put your home on the market first. It seems very likely that your current home would sell prior to you finding a new house. Temporary housing with young kids and a dog sound awful. I would not want to move twice, but obviously that is a personal choice. If you were my client, I would reccommend finding the house you want and making a contingent offer. It is less attractive but you can sweeten the deal by having your agent list your home the same day so it's on the market, being flexible with closing dates, maybe a larger escrow deposit and definitely offering full ask or higher.  If your agent has a good reputation of selling homes quickly that will help as well. I would suggest doing all the prep work ahead of time (cleaning out the house, getting it show ready and having professional photos already done) so it can be listed very quickly. Your agent could already have the draft MLS listing ready to go, and just hit submit when she needs to. 

[puppylove64]

I would not list until you find a new home. I would not make a contingent offer either. If you think your house will sell quickly, be prepared to list it within a week of getting under contract to buy. You would still have about a month to back out if anything crazy happens.

[Susie]

Jan 18, 2021 11:43:37 GMT -5 sakura said:

Jan 18, 2021 11:35:48 GMT -5 Susie said:

What do you mean by this?  How fast houses are selling at the $425k vs. $500k+ price points?

Right, so generally you are making yourself less of an ideal buyer if you go with a $500K+ house with contingency vs 425 and no contingency, but are there less buyers in the 500+ range that would give you an advantage of going higher?

I'm not really sure, TBH.  Looking at past sales, it seems like $450-470k is a common price point for houses of the size we're looking at, but IDK what factors have caused that.  Homes in the $450-470k price range tend to be, in my view, very nice and good matches for our wants.  The problem is how few there are.  Much over $500k seems to result in grander, more ostentatious homes than we're looking for -- the 2 story lawyer foyer, 3000+ sf, features like that that we don't really want, but also nicer lots.  

We certainly would be a stronger looking buyer at $425k or under, so that we would not need a contingency.  However, inventory is low in our school district (even looking at sold listings over the past 2-3 years), and we probably aren't going to have a choice between an available <$425k house that we like enough to leave our house for, and also an available >$425k house that we also like that has something extra worth going above $425k.  

I have a saved search for properties 1) in our school district, 2) with 4+ bedrooms, 3) with 2+ bathrooms, 4) up to $550k

and there are only 8 new construction + 7 existing homes, for a total of 15 listings.  I don't like any of them.  It will pick way up in the spring, but eeeeesh.

I'm worried that when a unicorn comes on the market, we'll lose it if we're not already on the market too.  But I'm also not willing to sell our house without having identified a place to move to, given how long it could take.  For all the reasons clairebear mentioned, I'd rather stay put than do temporary housing at this particular stage of our family/life.

ETA:  I guess in an ideal world, we save up enough to reach that $450-470k price point without a contingency, but that is likely to take us 6 months or so, and we'd miss the busy RE season in our area.  So that option might require deferring until 2022.

[purplepenguin7]

I’m in sort of a similar position and our realtor told us we really need an offer (not just listed) on our current house to be in contention for any of the houses in our price range. We can of course still make offers but she said things are selling so fast, multiple offers, over listing, etc that most sellers are interested in contingent offers. Our realtor said that we are more likely to have a buyer who will wait for a closing versus a seller who will wait for a house to sell.

It makes me nervous to think about because I also have no interest in moving twice and renting temporarily. It’s a hard situation and I really have desire to navigate any of it so I can sympathize with your situation!

[Cappy]

We were in this same situation and went with the contingent offer to buy the house we wanted. We had a small kid at the time and just could not risk being in a transitional house situation.

We put in a contingent offer on the house we were buying and removed the contingency when we had an offer (and backup offers) on the home we were selling. There was a 30 day window to get an accepted buyer offer on ours before our offer was dead. It was stressful but worked. We had 2 business days to list our home from the time the seller accepted our contingent offer. We had a very busy weekend staging but we made it work. We used our garage to store all of our packed stuff and speed the process of getting it ready to show.

Then we negotiated a dual closing where we sold first then 2 hours later bought. Our sales contract dictated that our buyers needed to use our title company to facilitate all this. Our realtor helped us through each step.

[sandandsea]

We bought the new house(gave a 30 day free rent back), then listed our old house and sold it with a 30 day close, then refinanced the new mortgage to apply extra down payment from the sale of our old house. We had enough saved in cash to be able to do this and could float two mortgages for a period of time if we had to. The house we bought listed Friday and we were in contract Monday. The house we sold listed Wednesday and we were in contract by Tuesday. Both were multiple offer situations. We live in a VHCOL area with a super competitive housing market so no contingencies are accepted, ever, and everything is as is. It’s crazy but it’s been that way as long as we’ve lived here so it just seems normal to me.

That said I really didn’t want to move twice or store everything so it worked out very nicely to be able to buy first.

[Pilsy]

I would do as clairebear suggests, though I would even consider making an offer free of the contingency. (Easy for me to say from afar, I suppose.)

It sounds like your current home will sell easily, so I would just focus on readying it and the listing so you can push go when you find the house you love. Good luck!

[Mushe]

We were in this position a few years ago, and chose to figure out how to do a non-contingent offer on our target home, having gotten our house ready to sell before we did so. We got several offers on our house in about a day, and accepted an all cash, above asking offer that made it so that we could close our sale first and not have to move $$ around. Our buyer let us do a short rent back period so we could move out after our purchase closed.

[lessel]

We did this order...
- got a bridge loan on our house approved but not executed
- went under contract on the house we were purchasing (non-contingent offer)
- put our house on the market two weeks later (gave us time to get it ready to show
- went under contract on the house we were selling within 48hrs
- closed on bridge loan
- closed on new house (sellers wanted a month temp occupancy to move)
- month later we moved
- closed our old house the following week

It all happened from like early May to second week in July.

ETA: We were confident our house would sell for at least asking. We were in a very desirable neighborhood with unique architecture. So that gave us confidence to do things in that order.

[freshsqueezed]

We had planned to do this. We found a house and put in an offer. Our house was supposed to go on the market the day after our inspection. The inspection was bad so we said no don’t put it on the market. 2 days later I said let’s just sell and move into an apartment/short term lease somewhere because I felt like my life was on hold. Following week our house was on the market and offer accepted within 48 hours. Market was very competitive and inventory was very low. We actually only ended up renting for 3 months and I found it a relief to be house free even though we had 2 small children.


My sister on the other hand put hers on the market before finding a new one to move. They accepted an offer and refused to rent for a bit. They are now in a house that isn’t so great and probably wouldn’t have been purchased if they weren’t in a hurry.

[k3am]

What does your real estate agent suggest?

Our market here is crazy and was absurd when we sold and bought. We knew our house would sell quickly and tried putting some non-contingent offers on houses while we were getting ready to list that our agent had previously told us wouldn’t be considered and he was.. right. It was such a sellers market that even if we were the highest bidder, just knowing that we had to sell our house, even though it wasn’t a contingency for our purchase offer and we had non-contingent financing lined up was enough to make sellers pass on our offer (many times).

We followed our agents advice and sold our house first (listed Thursday, offers by Tuesday, negotiations and acceptance Wednesday), with a 60-day closing, 30 day free rent back, and offer to lease back on a monthly basis.. (or maybe 30 day close and 60 day free rent back? I forget?) and then it was a scramble to get our new house. It was completely nerve wracking but it worked out so we didn’t need to move twice and we love our house.

If we hadn’t known what our house would sell for, we wouldn’t have even looked at this house. Our list price was double what we’d paid for our house (and what we’d originally based our shopping budget on) and it sold for $150k over list, so we had more room in our purchase price than we had anticipated.

So that’s a long way of saying.. ask your realtor what makes sense in your specific market. And then trust them, assuming you’ve got a good realtor (and if not.. get a better one).

[CrazyLucky]

I'm in a similar place. My house is in NC and I took a job in PA. The house in NC is worth about $270k and the market in PA/NJ is more in the $375-$450k range for us. Two weeks ago, I was supposed to come up and see four houses over the weekend. By Friday, three of them had offers, one of those had FOURTEEN offers, within two days of going on the market. We signed a contract last week to buy a house. It went on the market Sunday. I couldn't see it until Tuesday because they already had so many people seeing it Monday. On Tuesday, when I got there, we had to wait for other people who were seeing it. They apologized for running late, but said they had to wait for the people who were there before them. I saw it Tuesday, made an offer Wednesday, signed the contracts Friday. All without DH seeing the house. The realtor said that if our offer was contingent on selling our house, they wouldn't have even considered it. The market is too hot right now.
My advice is to either sit tight for a little while until the market cools down or figure out a way to make your offer non-contingent on selling your house.

[ssmjlm]

Jan 18, 2021 11:38:32 GMT -5 TR said:

Based on what you've said about your house and market, I would make an offer before your house is on the market. If you fall into that $425K - $510K window where you need your house to be on the market for a contingent offer to be competitive, how quickly can your realtor get that done? Like, could you put in an offer and have your realtor list your house at the same time?

This.

Also, what has your lender said regarding options for financing?  Could you get a short term HELOC to cover the gap in approval amount?  If you buy and settle before selling and settling your own house, can you recast your mortgage with the additional money down?

[Susie]

Jan 19, 2021 8:10:51 GMT -5 k3am said:

What does your real estate agent suggest?

She fairly definitively said we should find the right house to buy first, then put ours on the market.  But then she has also said ours would need to be on the market for a contingent offer to be competitive.  So... that's hard to reconcile.  Following those guidelines would eliminate the upper end of our budget, which would be unfortunate to artificially do.

Right now in our school district, which is sought after, there are only three 4-bedroom houses under $350k, and only two under $300k on the market at all.  One for $240k that's "calling all renovation specialists," and one that's kind of a frankenhouse for $190k.  We could list for $280-290k and be the only listing with 4 bedrooms under $300-350k that is fairly move-in ready and in a neighborhood.  It would sell too fast.  

For the moment I think the lack of inventory (on both ends) gives us a little more time to prepare and think about how we want to approach this.  The other thing we discussed last night is that if the situation isn't right... we don't have to do anything.  We can wait til next year, keep saving, have more cash on hand, and try again in the future.  As much as limbo sucks, we do not have to move now.  I am 100% sure that I am not willing to do temporary housing/two moves during covid, with various family members WFH and virtual school from home, on top of the usual stress of two young kids, a dog, and two full time careers.  In the future, maybe, but not now.

[Susie]

Jan 19, 2021 8:56:32 GMT -5 ssmjlm said:

Jan 18, 2021 11:38:32 GMT -5 TR said:

Based on what you've said about your house and market, I would make an offer before your house is on the market. If you fall into that $425K - $510K window where you need your house to be on the market for a contingent offer to be competitive, how quickly can your realtor get that done? Like, could you put in an offer and have your realtor list your house at the same time?

This.

Also, what has your lender said regarding options for financing?  Could you get a short term HELOC to cover the gap in approval amount?  If you buy and settle before selling and settling your own house, can you recast your mortgage with the additional money down?

I can talk to her about creative options a little more.  We are only at around 70% LTV on our house now, so we don't have a ton of equity that would be accessible via HELOC.  Somewhere in the $25-30k range.  Depending on how far above $425k we went, that might or might not get the job done.

[steamboat185]

We took a 401k loan when we bought. It’s not the best idea but we it only had a 100 dollar fee and we paid the money back as soon as our house sold. For us I think the money was out for about 30 days. If yours sells fast it could be out for less time. We knew DH’s job was safe and it kept us from having to add anything else into the contract.

[Susie]

Jan 19, 2021 10:27:33 GMT -5 steamboat185 said:

We took a 401k loan when we bought. It’s not the best idea but we it only had a 100 dollar fee and we paid the money back as soon as our house sold. For us I think the money was out for about 30 days. If yours sells fast it could be out for less time. We knew DH’s job was safe and it kept us from having to add anything else into the contract.

Honestly I've thought about doing that too, if we can't come up with another way to avoid the contingency.  I am a part owner of my firm, so my job ain't goin' anywhere, and I'm not worried about selling our house quickly.

[steamboat185]

Jan 19, 2021 10:38:14 GMT -5 Susie said:

Jan 19, 2021 10:27:33 GMT -5 steamboat185 said:

We took a 401k loan when we bought. It’s not the best idea but we it only had a 100 dollar fee and we paid the money back as soon as our house sold. For us I think the money was out for about 30 days. If yours sells fast it could be out for less time. We knew DH’s job was safe and it kept us from having to add anything else into the contract.

Honestly I've thought about doing that too, if we can't come up with another way to avoid the contingency.  I am a part owner of my firm, so my job ain't goin' anywhere, and I'm not worried about selling our house quickly.

It was way cheaper than a different loan and we didn’t want to draw down our cash too much. We also still had a decent amount in our 401k’s. We might have missed out on a little bit of market growth, but a lot of that was offset by the reduced costs. I guess you could time it terribly and end up with a bigger loss, but it was something we felt comfortable with and it gave us a bit of freedom when we needed some.

[sometimesrunner]

We had an accepted offer on a new place before we put ours on the market. Our offer was accepted on a Tuesday, our house went on the market on Friday evening (without interior pictures), and the first person to walk through on Saturday made an offer. We were unsure our house would appraise, so we accepted the offer. The nice part about doing things this way is that we knew when we were closing on the new place, and we knew we needed time to paint, refinish the floors, install new carpet before we moved in, so we were able to let our buyer know our preferred close date.

[lilac05]

Look into getting a bridge loan so you can avoid a contingency on your offer.

Have a plan just in case your house doesn’t sell as quickly as you’d expect.

Our very experienced, successful real estate agent (who sold our previous home before it was even technically in the market) assured us that our home would sell immediately. Our time looking in the market suggested the same. Everything was moving FAST. Unfortunately, she overpriced our home and we didn’t get an offer in the first week or two (which is when everyone fully expected it would sell). We missed our window. Once it was on the market 2 weeks in a fairly hot market, people assumed there was something wrong with the house. Our showings dropped dramatically. It was disastrous. At the end of our time with our agent, we could barely give the house away. We dropped her and had 2 full price offers FSBO in 2 days.

Lesson learned: Have a backup plan, no matter how sure you are that it’ll sell immediately. And make sure you’re priced right. I wish we had just sold the home for a lot less from the start instead of following her advice to “get what the home is worth.” (Bidding wars aren’t really a thing in our market.)

[dancingirl21]

We were in a similar situation when we went to sell/buy 3 years ago. We ended up listing our house first because we wanted to be very competitive in our offer to buy and not have a contingency to sell. We had been looking for a new house for a few months and one came on the market that we loved, but ours wasn't listed and it sold before we could get everything together to list.

When we did list, we sold in 24 hours and then panicked a bit. There was nothing else on the market that we really wanted to put an offer on. We kept trying to make one house work and looked at it 3 times before we gave up on it. We asked the buyer of our home if they would consider renting back to us for a month or two, but unfortunately they were losing their lease right when they were scheduled to close. We ended up moving in with DH's parents for about 6 weeks. They had the room so it wasn't awful and was the best move for us at that time. We ended up finding our house now before we closed on our old one, but needed that 6 weeks of time.

I'd consider asking about a bridge loan in your case. I'm also decently anxious so the thought of having 2 mortgages was a no-go for us.

[marie]

You could get a home equity line of credit and draw on it for part of a down payment if need be. Then when your current home sells it would be paid off. If you have a mortgage broker you may want to float this by them as it may change your pre-approval amount if your debt amount increases, of course that increase is temporary.

[janegold]

We were in this position last year. We ended up putting an offer in first and then listing our house for sale. It sold fairly quickly, but we still ended up having to close on our new house before we closed on the sale of our old house - luckily we only had to carry both mortgages for less than a month. We used a 401k loan to cover part of the downpayment and then paid it back immediately when our first house sold - it was super easy. Just make sure you can still qualify for your new mortgage if you still have your old one.

I will say, though, it was super stressful for us to wait for our house to sell as it wasn't a particularly hot time in the market where we were selling. If I had to do it over again, I wouldn't do things in that order but since you really don't want to move to a temporary place, I'm not sure you have much other choice. And your realtor seems to think you won't have a hard time selling, which is good.

[expectantsteelerfan]

We're also looking right now with no rush to move other than we hate our house. Our finances are a little different, but our market sounds similar. We are not willing to put a contingency of selling our house on an offer, so we play to only spend what we can afford without a contingency, buy, and then list our house. This may not be the most financially smart move (right now our house would sell immediately for more than market value, but what is more likely to happen is that we will not find a house till this summer when the market is saturated, and we might have to carry 2 mortgages for a few months and take a lower offer on our house), but it is by far the most convenient move because we are not able/willing to move into temporary housing if our house sells before we find a house we want to move into. Since we are financially able to eat the cost of waiting to list our house, it's what we've decided to do. We are looking for our forever home (we knew this was a starter home moving in and that my dh's pay bracket would increase significantly a few years after we bought), so we really want to focus on finding the right house to buy without worrying too much about our current house.

[macmars45]

H and I (with our 4 yr old DS) moved cities so while we briefly tried to buy then sell, it was hard being 2.5 hours away in a low inventory bidding wars market. So we moved into a rental, sold our TH and then bought our SFH. We were in the rental for 5 months so it was worth it to us between COVID and H needing a quiet space with good wifi to WFH. It was hard on our DS though, no question about it. And I am vowing to stay put for 20-40 years now. Moving twice in 5 months during COVID sucked.