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It’s
the old “chicken or the egg” story. Every day hundreds of people struggle
with the dilemma of what to do first... Sell their home and then buy one, or
buy another home and then sell theirs.
Each method has its own risks.
However, there is usually one option that will work best. Let’s take a look
at a very traditional couple, Bob and Gloria. They must decide which option
to use: Sell their existing home first; or buy a new home first and then
sell their existing home.
Bob and Gloria knew for some time
that they would be selling their home on Fairfield. They had purchased it
just after they were married and now they were outgrowing it. They loved
their present neighborhood and wanted to move to a similar area.
They had made many improvements to
their home. It was decorated in the very best of taste. Everything was in
perfect condition, but the home was just too small now that they had two
children.
They had their Realtor,
Anne-Marie, stop by and give them a value on their home. Anne-Marie looked
through the home and noted all the improvements they had made within the
last five years. She estimated the value of the home, and advised Bob and
Gloria that it would probably sell within 30-60 days.
Encouraged by this, Bob and Gloria
asked Anne-Marie to keep an eye out for homes in the Carmel Valley area.
Specifically, three or four bedroom homes with nice yards. Anne-Marie began
sending them Carmel Valley listings from her computer, and they would visit
open houses in the area.
Occasionally Bob and Gloria would
schedule a private showing with Anne-Marie to see the inside of a home or
two. They began to get a real feel for what was available. Over a three-
week period, Bob and Gloria saw a number of Carmel Valley homes that they
liked.
However, they didn’t find the
perfect home.
Perhaps if their home on Fairfield
was already sold, one of the Carmel Valley homes would have been more
appealing to them. It would have been much easier for them to make a
decision.
At Anne-Marie’s suggestion, they
visited their Lender and obtained a “Preapproval Certificate.” Anne-Marie
explained that this was their approval for a new home loan. This
certificate would show a seller that Bob and Gloria were qualified to obtain
a loan. It would make any offer more appealing to a seller.
Bob and Gloria now knew they could
afford to move. However, because they didn’t have to move, because
there was no urgency, they decided not to put their home up for sale until
they found the perfect new home.
Bob and Gloria were worried about
selling their home before finding another. They were concerned that since
their home was so nice, it would sell quickly... perhaps too
quickly. Then they would have to make a fast, or even a rushed, decision on
a new home.
They were afraid of having to
compromise if there was nothing out there that was just right for them. So
they chose to keep looking, instead of listing their home. They visited
more open houses, and they drove by almost every new listing Anne-Marie sent
them.
On weekends they drove through
Carmel Valley and other similar neighborhoods just to look, see and feel
the areas. They always came back to Carmel Valley because it was their
favorite area. They liked the schools and its proximity to freeways. It
was a reasonable distance to both of their jobs.
Each Tuesday, Thursday and
Saturday they received an email of new listings from Anne-Marie that her
Multiple Listing Service computer search had turned up. One day, Gloria
opened an email of listings from Anne-Marie. Inside were two brand-new
Carmel Valley listings. She drove by them, and thought they both had
possibilities.
Gloria discussed both listings
with Bob that evening. They decided to call Anne-Marie and arrange to look
at the homes Monday evening. That Monday evening their lives changed.
They found the perfect Carmel
Valley home. It was gorgeous. Everything that they had hoped for –
and more. A nice yard with a VIEW, 3 baths instead of 2 and a master
bedroom with huge walk-in closets.
The only problem was the asking
price. It seemed to be about 10% higher than other similar homes were
selling for in the area. Even allowing for the perfect condition (the
setting, the baths and the view), the most they could justify offering was
about 5% less than the asking price.
Bob and Gloria had Anne-Marie
prepare an offer that evening for 5% under the asking price. They felt it
was a very reasonable offer.
Of course, since their home wasn’t
even for sale yet, they had to make the Carmel Valley offer contingent on
the sale of their home on Fairfield. In other words, they wanted the Carmel
Valley owner to remove his home from the market until their home on
Fairfield sold.
Bob, Gloria and Anne-Marie were
convinced that their home on Fairfield would sell within 60 days.
Therefore, they worded their offer to ask the seller of Carmel Valley to
hold his home off the market for 60 days. That would give them the necessary
time to sell Fairfield.
According to the contingency
clause, if their home on Fairfield did not sell, they would not have to buy
Carmel Valley. Everything would work in their favor because they would not
lose any money. They had no risk.
The next day Anne-Marie presented
the offer to the Carmel Valley Realtor, David Smith. She explained to him
how perfect Carmel Valley was for Bob and Gloria. She gave him a copy of
Bob and Gloria’s Preapproval Certificate.
Most importantly, Anne-Marie took
great pains to share with David all the details of Fairfield – how perfect
it was. He told her they would list the home “right on the money” to make
sure it sold fast.
Anne-Marie also told David that he
was convinced Fairfield would sell in two or three weeks at the most. He
said that even though the offer was “subject to” the sale of Fairfield,
there was very little risk to the Carmel Valley owner.
David seemed very positive about
the whole offer. He promised to meet with the Carmel Valley owners that
evening. Anne-Marie called Bob and Gloria to tell them that he thought
things went well, and to keep their fingers crossed.
David called Anne-Marie back the
next morning with bad news. Even though Bob, Gloria and Anne-Marie felt
strongly that Fairfield would sell within 30-60 days, the owner of Carmel
Valley was afraid of removing his home from the market for any length of
time. He wanted some “shouldering of the risk” by Bob and Gloria.
The Carmel Valley owner felt that
he was being asked to take all of the risk. If Fairfield did not sell in 60
days, Bob and Gloria would walk away scot-free. They would loose nothing –
it wouldn’t cost them a penny.
However, Carmel Valley would be
off the market for 60 days of prime selling time. The Carmel Valley owner
knew he had one of the nicest homes in the area. He was sure that Carmel
Valley would sell within 60 days.
He just couldn’t see any benefit
to taking it off the market and “hoping” that everything went as planned
with Bob and Gloria’s home. Also, the Carmel Valley owner further observed
that if he accepted Bob and Gloria’s contingent offer, he couldn’t make any
definite plans.
He had no way of knowing for sure
if Fairfield would sell, so for 60 days he would be “in limbo.” He did not
want to be in that position. The Carmel Valley seller had a whole
different perspective of the proposal than did Bob and Gloria.
He worried about, “What will I do
and where will I be if things don’t work out?” All Bob and Gloria could see
was, “It’s a 99% sure thing... just give us a little time and we’ll work it
out.”
Based on his concerns with the proposal, the Carmel Valley owner indicated
to his agent that he would consider one of the following options:
Option # 1: He
would take Carmel Valley off the market and hold it for 60 days for a
non-refundable deposit of $3,000. The $3,000 would apply to the purchase
price; but if the sale did not close within 60 days, Bob and Gloria would
forfeit their $3,000 to the seller. This type of arrangement would shift
some of the risk to Bob and Gloria. The amount of $3,000 seemed to be a
reasonable figure for the seller. This would cover his loss if he held his
house off the market for 60 days and then had to start all over.
Option #2: He
would agree to sell the home to Bob and Gloria at the price they offered.
However, he would reserve the right to keep his house “on the market” and
sell it to any other buyer who came along in the meantime. If Bob and
Gloria could sell their home before another buyer came along, they could get
it.
Option #3. He
would agree to hold the home “off the market” for Bob and Gloria for 30
days, but he wanted the full asking price. This would be his compensation
for holding the home off the market. Under this option, Bob and Gloria
would be under no risk if their home did not sell. However, they would have
to pay a higher price to get the home they wanted.
Bob
and Gloria talked to Anne-Marie about the three options. None of the
options were what they had hoped for. Anne-Marie explained that the seller
of Carmel Valley wanted to know with a strong degree of certainty that if he
took his home off the market it would be sold.
The
first option would allow him to receive reimbursement in case Bob and
Gloria’s home did not sell promptly.
With
the second option, he could keep the house listed; and he wouldn’t lose any
time if Bob and Gloria couldn’t purchase it.
The
third option would allow the owner of Carmel Valley to receive the full
asking price. In exchange he would keep the home off the market for 30
days.
The
owner knew Carmel Valley was a beautiful home in a great location. He knew
there would be other buyers that would love his home. In other words, he
knew Carmel Valley would sell quickly, at a good price. He didn’t need to
get involved with hoping someone else’s home would sell.
“But
I don’t know if I want to risk $3,000 if my house doesn’t sell,” said Bob,
referring to Option #1. “What if our home doesn’t sell within 60
days? Is it worth risking $3,000 to get Carmel Valley?” Bob scratched his
head. “And I know I don’t want Option #3! As nice as Carmel Valley
is, it’s not worth the full asking price!”
“But
if we don’t take Options one or three,” observed Gloria, “we’re stuck with
Option #2 – and Carmel Valley will probably sell before we can get our home
sold.” “Or, we have to pay a high price or risk a substantial deposit to
hold it,” replied Bob.
After considering every side of the issue, Bob and Gloria decided that they
just weren’t ready to risk $3,000. Nor were they willing to pay the full
asking price. So they took Option #2. Anne-Marie listed their home on
Fairfield the next day.
Three days later the phone rang. It was Anne-Marie. “Carmel Valley got an
offer last night for the same price you had offered but it was non-contigent.
The new buyer of Carmel Valley listed their home several weeks ago and it
sold last week.”
Gloria’s heart sank. All along, in the back of her mind, she had known that
the odds of them selling Fairfield before Carmel Valley was sold was an
outside chance at best. However, she had already been living in Carmel
Valley in her dreams.
She
imagined the children playing in the huge backyard. She had envisioned cozy
evenings, curled up in front of the fireplace reading a book. And the huge
master bedroom! “Oh well,” she thought, “it’s all gone now.”
When
they had started looking for homes, Gloria hadn’t realized that there would
be this much stress involved. It was almost enough to just forget the whole
thing, but they had put off the decision too long already – Fairfield was
just too small.
That
evening Bob and Gloria talked about what was really important. They called
Anne-Marie and asked to meet with her the following day.
“Anne-Marie, we need to sell Fairfield,” began Bob, “but we just don’t know
what to do if we can’t find anything we really like once it sells. We just
don’t want to be pressured into buying a home that’s not right for us in the
short amount of time that we’ll have.”
“Well, let’s take an objective look at where you are,” said Anne-Marie.
“You’re not the first clients I’ve had that have been in this situation.
Let’s look at what usually happens.”
Anne-Marie continued: “We can list your home for sale with the stipulation
that you can remain living there for up to 60 days after the closing of the
sale. Most sales close 30-40 days after the offer is accepted. This would
give you about 90 days, perhaps longer, to find another home. It’s
interesting, but the house you will eventually buy is probably not even
listed yet. The houses that are listed for sale now, the best buys, will
probably be sold by the time your home on Fairfield is sold,” said
Anne-Marie.
“Why
is that?” asked Gloria.
“The
good ones sell fast,” said Anne-Marie. “Most of the nice homes listed at
fair prices will probably be sold in 30 days. So, if your home sells six
weeks from now, there will be a whole different group of nice Carmel
Valley type homes for sale.”
“But
how do we know for sure that there will be a home we really like?” wondered
Gloria.
“Well, let’s look at it this way,” replied Anne-Marie, “you’ve been looking
at homes seriously for about three to four weeks. You’ve seen a number of
homes in your price range that you like. You found one that you were in
love with.”
Anne-Marie continued, “It’s been my experience that when your home sells,
you will find the right one. While there is no way I can predict what homes
will be for sale, I can predict that there will be a completely different
group of homes for sale. One of them will be right for you.”
“But
what about the prices?” asked Bob. “What if there is nothing that we can
afford?” Anne-Marie answered, “What I hear you saying is fear of the
unknown. It’s difficult to make a move without knowing exactly what lies on
the other side of the mountain, so to speak. However, there is no way to
completely eliminate all risk and still get a good value. As a matter of
fact, we haven’t talked about the biggest benefit of selling your home first
– and that’s the power of cash negotiation.”
“You
see,” Anne-Marie continued, “you are already more knowledgeable than most
buyers about Carmel Valley type neighborhoods, prices, features and value.
You’ve done your homework and have learned that market. You’re experts. In
fact, I’d say you know the Carmel Valley market better than 90% of all real
estate agents.”
“I’ll continue sending you information about Carmel Valley homes until your
home is sold. You’ll become even sharper about the market. When your home
sells, you’ll be one step ahead of the great majority of buyers out there.
You will have a tremendous edge. Remember, you’re not the only family
looking for a well-priced, nice home in the Carmel Valley area. When an
attractive, well-priced home is listed, you’ll be one of many who want it.
Since you’ve done your homework, you’ll be able to move more quickly and
‘pick the plum’ before anyone else gets it.”
“What’s more is that with your home sold, we’ll be negotiating from a
position of strength. Any offer you make will be very seriously
considered, because it’s like cash. Your home will be sold, so there will
be little risk for the seller to deal with because you’re already
preapproved for a new loan. I’ll be able to bargain on your behalf even
more effectively with a seller. I’ve helped many buyers get really
good deals using these techniques.”
Bob
and Gloria decided to take Anne-Marie’s advice. Four weeks later their
home was sold. Anne-Marie began updating Bob and Gloria daily with all
the new listings on the Multiple Listing Service computer.
When
a new listing would come through, Bob and Gloria knew about it the day it
was in the computers. They were often the first people through the new
listings. They kept meticulous notes about values and features. They had
notebooks full of notes.
Two
weeks later Anne-Marie emailed with the news that another Carmel Valley home
was listed for sale. The home very closely matched Bob and Gloria’s
specifications. The price seemed to be right on the money.
On
her way home from work that night, Gloria drove by the new listing. It was
gorgeous on the outside. She called Anne-Marie and Bob from her car.
Three hours later, Anne-Marie finished writing the offer. Bob and Gloria
had decided to make an offer of 5% below the asking price. They were
prepared to pay at least $20,000 more than their offer because the home was
perfect.
The
next morning, Anne-Marie called with good news. Their offer had been
accepted as written. They got the house for $20,000 less than they
would have paid!
By
selling their home first, Bob and Gloria put themselves in a stronger
position when it came to making a purchase. They could negotiate better,
because there was very little risk involved for the seller.
Bob
and Gloria put themselves in a position where it was very easy for a seller
to accept their offer and ended up with the home of their dreams.
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