The Grand Dilemma
February 19th, 2009 categories: For Sellers
There is a dilemma that is not unique to Honolulu real estate. When it is time to move to a new home, do you find your new home or sell your existing house first? Providing you are in a strong enough financial position, either option is open to you. However, I have always advocated getting your existing home sold first! In the current real estate market, I feel even stronger that this is the right course of action. Here is why.
1. You will probably sell your existing home for less than you think. The market is finicky and, today, no one can tell you in advance with surety how much your home will sell for. If the last comparable home or condo sold for “X”, then, in most situations, you should expect to get less than “X”. I just closed a condo for $320,000 (which was a very low sale) and the day we closed a new listing came on the market at $295,000. If you needed the $25,000 difference to have the move make sense this change in the market could destroy your plans. If you have already purchased your next home with out selling your existing home, this shift in value could throw a wrench in you financial plans.
2. If your existing home is not sold, you are in a weak negotiating position. You find your dream home and make an offer subject to the sale of your current house. Most sellers are not willing to risk that your home will sell. In these cases, in order to “buy” the seller’s patience, I see buyers paying more than they should. If the home were sold and closing could happen more quickly you should get a better price.
3. Bridge financing may not be a silver bullet. This sort of financing is expensive! You pay higher fees and since the loan is tied to your new home and the down payment is financed out of your unsold former dwelling, your monthly costs can be extremely high. Since you have to pay off the portion of the loan linked to your prior home, the financial pressure could force you to make poor selling decisions.
4. Renting, the final insult. One of the bitter options, if a home does not sell, is to rent it out. With Honolulu’s existing rental rates and normal mortgage payments, you should expect to have a significant negative cash flow from turning your home into a rental. Every month for the next 3 to 5 years, you should expect to be reminded that perhaps you should have sold this house first.
So here is what I recommend. List your house for sale. Accept a binding contract from a qualified buyer. Negotiate a 60 to 75 day closing date with a 15-day extension. Once the buyer clears the inspection contingencies (usually within 15 days), start looking for you new home. Once you find it, make an offer subject to closing your existing your home. Time the closings so you can have move out of you old home right into your new one.
If you would like to discuss your dilemma, feel free to call me at 808-737-2093 or toll free at 877-737-2093. Or email me at keahi@lava.net.
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I did all this with you and yes, it’s the right thing to do. When you are ‘mortgage free’, or ‘contingency free’, I sense that I can negotiate much stronger when buying with only a financing contingency of which can be addressed by being ‘Pre Approved’ for a loan. Thank you, for helping us and giving us sage advice.