Three Ways to Avoid Moving Twice

Three Ways to Avoid Moving Twice

In the Denver Market, it can be tricky making a move when you have a house to sell. Most sellers can’t afford to buy a new home first, move in and then sell the old house.

The idea of moving twice (move out of the old house, move into a rental, look for a new home and move again) sounds like a lot of work – and it is. Fortunately, using contingencies or a rent-back agreement, you can avoid the dreaded double-move. Here’s how:

Con·tin·gen·cy:

something that has to happen before something else can happen.

You already know about some contingencies, because they are “built in” to most real estate transactions:

  • The buyer has to get financing before they can buy the house
  • The house must pass inspection or the buyer doesn’t have to complete the purchase
  • The house has to appraise at the contract price. otherwise the lender won’t make the loan and the buyer doesn’t have to buy
  • The “title” to the home has to be insurable, or the buyer doesn’t have to buy

Those are all “contingencies”, and there are others, but you get the idea.  In the next couple of examples, you’ll use contingencies to juggle two closings and avoid moving twice. Remember, all these things are negotiable, and getting a seller to accept your contingency depends on a lot of things including market conditions, their willingness to accept more risk, time on market, etc.

Contingent on Closing the sale of your current home.

  • your house is already on the market
  • you have an accepted offer (it’s “under-contract”)
  • you’re just waiting for all the ‘contingencies’ to get resolved so the first sale can close (buyer gets their loan, inspection done, money disbursed at closing, etc.)
  • Odds of getting this accepted:  pretty good unless there are other competing offers without such a contingency.  Your chances also improve if you provide lots of information and assurances about your pending sale (lender pre-qual letter for your buyer, proof that the inspection has been resolved, copy of the contract, etc.).  Hopefully, it’s a solid transaction that’s just waiting for the closing and no surprises.

Contingent on the Sale of your current home.

  • your home is on the market, but not under-contract
  • must have an ending date for the contingency:  home to be sold and closed by a certain date.  Could also have a requirement that it be “under-contract” by a certain date.
  • First Right of Refusal.  Usually goes hand-in-hand with this contingency.  You allow the seller to continue to try and find a non-contingent buyer, and if they do, you get a day or two to remove the contingency and proceed with your purchase, or refuse to remove the contingency and let the seller go with the non-contingent buyer.
  • Odds of getting this accepted:  not so good, actually.  This one is hard to sell in a hot market – too many things could go wrong (you may not sell yours), the seller will lose some showings once their home goes “under-contract” with a contingency (even with the First Right of Refusal).

Rent-back Agreement

In this case, you sell first, stay in your old house after the closing (as a tenant) and look for a replacement property during the escrow period and rent-back period.

  • your home is on the market but you don’t have a buyer yet
  • once you find a buyer, try to negotiate a long escrow period (say a 60-day close).  Not always possible, but ideal.  You can see how all of this might depend on your buyer’s ability to have a place to stay while waiting for you to vacate.
  • rent-back clause allows you to remain in the house after closing for the rent-back period, usually 30 days.
    • the rental amount is usually equal to the buyer’s new house payment (including P&I, taxes, and insurance).  You’re paying for convenience now, not necessarily the market rental value.
    • you may not need to use the rent-back.  Let’s say you find a replacement home quickly (during that 60-day escrow period), and it’s vacant so you can move in right after closing the sale of your old home.  For this eventuality, maybe you have a deadline for electing to use the rent-back provision or not (e.g., written notice to your buyer before a certain date).

Rent-backs are useful, and in today’s market probably the easiest way to buy time to find a replacement.  You might still have to move twice, but the odds go way down.  Both parties share the risk in this situation, so it’s key to find a buyer who is willing and able to do it this way.

“Bridge” LoansBrooklyn Bridge

I guess this is really the fourth way, and it’s technically for sellers who CAN afford to buy first and sell later.  It’s a temporary loan, much like a Home Equity Loan, and designed to “bridge” the gap between selling and buying a replacement.   You’re borrowing enough to complete the purchase of your new home, and then paying it off when your old home sells and closes.  Here’s how it works:

  • The term of the bridge loan is 6 months or less depending upon how quickly you sell your current residence.
  • your current residence will need to be listed for sale prior to the loan closing
  • The amount of the bridge loan is calculated:  90% of the appraised value of home minus your current mortgage payoff amount = lendable equity (amount of bridge loan)
  • the bridge loan has a 1% origination and an interest rate that’s about 1% higher than the current 30-year fixed
  • At the time of the sale the proceeds from your current residence will pay off the principle and interest for your loan.

Bridge loans are not that common because not everyone can qualify for 2 payments.  Plus, they seem to make borrowers particularly nervous about getting over-extended.  That being said, it’s a powerful vehicle for eliminating the double-move, and it turns the would-be seller into virtually a cash buyer, allowing a lot more leverage on the buying end.  Bridge loan lenders appreciate the anxiety, and will typically be flexible about extending the terms is you need another month or so and are making a good faith effort to sell.

 

 

 

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