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You’re in the market to buy a new house here in Northwest Arkansas, but you’re still living in your current house. So how do we make this transition as easy as possible?
Do you sell your first house and then scramble to find your next one? Do you find a house to put an offer on and then hope you can sell the first house quickly enough to close on the second one?
First let’s talk about contingencies.
CONTINGENCIES
Contingencies are things you can’t be sure will happen or not. Usually they are events that are dependent upon another event happening or not happening. So if ‘X’ happens, then ‘Y’ happens. However, if ‘X’ doesn’t happen, then ‘Y’ doesn’t happen either.
So when we’re talking about Real Estate Contingencies, we’re usually talking about the purchase or the sale of a property being contingent upon another event or condition. There are a few of these that are already written in to the Arkansas Real Estate Contract such as the sale being contingent upon the property being able to pass an inspection and to be in a condition that is acceptable to the buyer.
Another contingency included in the Real Estate Contract is that the sale may depend on the buyer being able to get financing. And typically this is done through a lender, which will request an appraisal to be done. If the property doesn’t appraise for the right amount, the lender might not finance that deal.
Now other contingencies may be added to the contract, but extra contingencies above and beyond what is already pre-written into the standard contract may weaken a buyer’s offer to purchase. Let’s look at the best case scenarios and then see what happens as we add contingencies and other options.
BUY THE 2ND HOUSE FIRST, CARRY TWO NOTES
So the best case scenario is to Buy the 2nd house, and then sell the first house. Of course, this means you’ve got to be able to qualify for and carry two notes at the same time, at least until the first one sells. But if this is an option for you, it puts you in a great position as a buyer, and also as a seller.
You can take your time to make sure you’re buying the house you really want without feeling rushed. And then you can sell your 1st house without worrying about the transition, because you’ve already got your next house lined up. There are no contingencies involved, so it puts you in a position of strength on both transactions.
SELL THE 1ST HOUSE, RENT, BUY 2ND HOUSE
Now the second best option after that would be to sell the first house, and rent while you’re looking for your next home. This option keeps you in a strong position as a seller and a buyer, and no contingencies are necessary, just like if you were to buy first and then sell.
However, the rent house may not be the ideal place to live for the few months you need it, it may be hard to find a short-term rental, and you will probably need to put some things in storage. While it has some temporary inconveniences, this may actually be your best option, particularly if you’re moving to a new state or a new area and need some time to find the right house to purchase.
BUY CONTINGENT, SELL 2ND
Sometimes sellers want to wait until they’ve found their new house before they commit to selling their current house. There is a pre-written option for buying a home contingent upon the sale of another that is already included under Section 14 in the Arkansas Real Estate Contract. However, if you put in an offer on a house that is contingent upon the sale of a house that isn’t even on the market yet, this is a really weak offer.
Most sellers will not accept this offer, especially in a strong seller’s market when they can reasonably expect to get other offers on the house. They know how much work they’ve had to do to get their property ready for the market, and they will seriously doubt your ability to do all that, find a buyer, and close all within a short amount of time.
SELL 1ST, BUY CONTINGENT
A better way to go about this is to list your current home for sale, get it under contract, and then put an offer on the new place. This is a much stronger contingent offer. We can say that our offer is contingent upon the sale of a property that is already in the process of closing and we can give dates and timelines accordingly. If we have to use a Sale Contingency, this is the better way to do it.
SALE-LEASEBACK
Now, another option which may work for you, depending on the situation, and depending on the Buyer is the Leaseback option. Essentially, you are selling your home to someone who will allow you to stay in the home as a tenant and rent it from them until you can close on your new house. This works particularly well if the Buyer is an investor who was looking to rent the house anyway. They would love to start generating income on a property as soon as they close on it without having to do anything else to it.
In a Leaseback situation, you have two separate contracts. First, you sell the house to the new Buyer with a standard Arkansas Real Estate Contract, and they become the legal owner. Then you’ll sign a Residential Lease Agreement which lays out the terms of the rental. This could be month-to-month, it could be a year lease with the option to end it early; It’s whatever you decide in that contract.
Another situation this works for, is if the Buyer is buying your house before they sell their current house. They were expecting to cover two notes, but this option allows your rent payments to cover that second mortgage while they sell their first house, and you buy your next house. So this has the potential to be a win-win for the right Buyer and Seller combination.
WRAPPING UP
Well, those are my top suggestions for making a smooth transition from one home to the next. As you can see, there are some straightforward options, and some that are a little more complicated. But don’t worry. As your Real Estate Professional, I’ll be happy to discuss these options with you and help you choose the right strategy for you and your family.
If you have any questions, feel free to…