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The past couple of years were tough on home buyers. Trade-up buyers who were selling one home to buy another had a particularly hard time. If they needed to sell in order to buy, they couldn’t compete against buyers who could afford to pay all cash. But, if they sold their current home first, there was no telling how long it would take to find a suitable replacement home. Inventories of homes for sale were at a record low. There were too many buyers competing for too few listings.
Now the tables are turning. Inventories of homes for sale are rising and the housing market appears to be slowing from last year’s vigorous pace. This doesn’t mean that you won’t find yourself in competition with other buyers for a wonderful home. But, a slower market has created a more level playing field.
It remains to be seen if, and how much, home prices will soften. It will vary from one location to the next and possibly from one house to the next. The most desirable homes tend to hold value better than less desirable homes in the same marketplace.
A softening in home prices can actually work in favor of homeowners who are attempting to trade up. Suppose prices decline 5 percent. You’ll sell your home for 5 percent less than you might have last year. But you’ll pay 5 percent less for a more expensive home so you’ll come out dollars ahead.
REPEAT-HOMEBUYER TIP:
A dilemma facing most trade-up homebuyers is whether to buy or sell first. If you buy first, you know where you’re going and when. Also you know how much you’re paying for your new home. The unknowns are how long it will take to sell your old home and how much you’ll net from the sale. Trade-up buyers who choose to sell first have the benefit of knowing exactly how much cash they’ll net from the sale.
When the real estate market is in transition, as it is now, there can be more uncertainty about selling prices. This increases the risk of buying before you sell. You could find yourself selling for less than you had anticipated.
There are ways to minimize the risk. First, be realistic about the value of your home. Have your real estate agent prepare a current market analysis of your home to establish its approximate value. The most recent comparable sales provide the best information about the probable sale price of your home. Comparable sales from several months ago may be out of date.
Don’t rely on a refinance appraisal. This may not be an accurate reflection of current market value. One trade-up buyer relied on a bank appraisal of her current home in calculating how much she could pay for a trade-up home. After she was in contract to buy the new home, her real estate agent told her that her home would probably sell for significantly less than the appraised value.
The safest way to make a trade up move is to buy your new home contingent on the sale of your current home. However, in many areas, this strategy is unacceptable to sellers. A more realistic approach is to sell your current home first with a provision that you may need a long close of escrow and, perhaps, a rent-back. A rent-back lets you stay in your home for a period of time after closing.
THE CLOSING:
Then, when the inspection and financing contingencies are removed from your sale contract, start shopping in earnest for your new home.
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