How to buy a house before selling your current one. Pitfalls to watch out for.
[CRYS] Hey guys, we’re back here at Ten Arrows and we’re going to talk a little bit about contingencies and what that is. Do you have a home to sell before you buy your new home? Do you need the proceeds of that sale to buy it? Or, would that just make your financing more favorable? If that’s a thing, then we’re going to talk about that in detail.
[CRYS] [CALEAB] Cheers!
[CRYS] Most people need to sell their home before they can buy a home. It’s very common and so what you’re looking at is a contingency. A contingency is a few different things but in essence, you are asking a seller to sell you their home but it’s contingent upon the sale of your home.
[CALEAB] With a contingency sale, it can be done but it’s not always the easiest thing to do.
[CRYS] One of the reasons that this is a little more difficult is that, in my experience, it may be different in other places but about half of your sellers will not even accept a contingency offer.
[CALEAB] Some won’t even look at it.
[CRYS] You want to keep that in mind but then there are a few different ways to structure it. You can either go ahead and get your home on the market and get a contract going and then once that you have a contract and you know when your closing date is going to be. That way when you go out there and place an offer on the home that you do find, you can line it up where the closings land on the same day. Or, you can go ahead and start looking, find that home and place your offer (still contingent) but it would say that it’s contingent and you were going to get your home on the market. Some will agree to it if you have your home on the market in 24 hours, others about 3 days. That’s going to be a negotiable item.
[CALEAB] With that being said, most of the time you can close on the same day but there are instances where you cannot. You need to make sure that you have a plan of where you can go in between those times of your home selling and buying a new home.
[CRYS] There are a couple of examples here. One of them would be, let’s say you found your home, you got it under contract and your home that you are selling is also now under contract. Everything looks like it’s smooth sailing from here on out. Then, a week before closing the buyers of your home have some type of hick-up, they need to get some additional documentation to their lender. Something like that happens which then extends it. Now, you can’t close on your new home until they close. And so, you’re going back and asking those sellers to extend, and most of them, if you’re that close to closing and they’ve already accepted a contingency offer is ready to be negotiable and a little more relaxed about the situation but you will have some (sellers) that are ready to dig their heels in and would rather bust the contract. Just know that going into it. There is a risk and that could be something that happens.
[CALEAB] Worst case scenario, your home that you’re selling busts, and they completely back out and now you’re kind of just stuck. More than likely, you’re going to have to break the contract unless you have another form or way to finance the deal.
[CRYS] Let’s backtrack a little bit and talk about kick-out clauses. It’s called a couple of different things but there is such a thing as a kick-out (clause). A lot of the sellers will go ahead and accept your offer…now this only applies if your home is NOT under contract. You can place an offer on a home and get it under contract without your home being under contract. So, you have your home on the market may be the timing kind of works out. Maybe, the home that you are buying (the sellers) are okay with a 60-day closing, that gives me plenty of time to get my home on the market and get it under contract. So, it’s on the market but not officially under contract, yet. That seller can still market their home as active and take other offers in that period until I also have a contract. If a buyer comes in and places an offer that is better than your offer (it could be many different things). If the seller accepts that offer they will then come back to you and say that you have a certain amount of time to remove your contingency or we’re going to move forward with this other offer.
[CALEAB] The moral of the story is that a contingency can be done. It’s not always easy and 50% of the time it’s probably not going to happen but if you have a knowledgeable agent who’s aggressive and ready to get it done, it could happen. So, don’t be afraid to ask questions. That’s the best thing to do. That’s all we have for you, today. Remember to like, comment, subscribe!
[CRYS] Let us know if there are any other topics that you want us to cover and we’ll gladly do that.
[CRYS] [CALEAB] See ya’ next time! Byeeeee!