The Reverse Sales Process.

Clients will say; “I have to find a house before I sell mine.” Or... “We cannot miss out on this home.”

 A professional Consultant will always advise their clients of the risks associated with this strategy. Of course there are exceptions to every rule. Sometimes timing, finances or opportunity mean you have the ability or a good reason to buy first. However, in over 90% of the cases we have seen, the fear that drives the decision to reverse the sales process will cost you around ten thousand dollars. Here is why...

 When you buy a house conditional on the sale of your own home, you usually must include a “24/48/72 hour clause.” This means that the seller can still sell his house to someone else. If you liked the house enough to put an offer on it, chances are someone else will too and your offer will get bumped. This is what happens in most cases.

 If you do get a seller to accept an offer conditional on the sale of your house, and your offer does not get bumped, the sellers Realtor will advise them to insist on list price or very close to list to compensate for the weak conditional offer. This usually costs the buyer $4-5000 dollars in most markets. Your leverage is weak and you are putting the seller in a weaker position.

 To clarify on why your offer is weak; imagine if a consultant had your house listed and you received an offer conditional on the sale of another home. The consultant would advise you that it is a weak offer as there is risk associated to it. Specifically you must rely on the gamble that the other house sells in the allotted time. Meanwhile; your house is less attractive for the period of time specified in the conditional contract to sell. Why? Most Realtors will not show houses with this kind of restriction on them. Their buyers could get excited about the house and not be able to buy it anyway.

 Even if you do manage to get an offer accepted conditionally well below list, it will not work in your favour. Now that the new “floor” price is established, the list price is normally dropped to tempt buyers in spite of the offer you have made. In essence, you increase the chances of the home you want selling to someone else.

 If you are willing to pay the extra and your offer does not get bumped it will still cost you more. Consider the following scenario...

You now have a conditional offer on another home and your home is listed; you get an offer of your house but it is less than your bottom line. However, if you don’t accept it there is a good chance that you will lose your dream home. This extra pressure “statistically” will cost you $4-5000.00 dollars.

 So what is the alternative to the reverse sales process? By far the best procedure for buying a house is to list your house and put your feet on your coffee table. Let your Real Estate Consultant go to work and you can relax. When your house sells you make sure your closing date is long enough so that you have ample time to look for a house. Approximately 60-90 days is preferable.

 This now turns you into a cash buyer with much more leverage for negotiating. Remember, it takes a lot longer to sell a house than it does to buy one. Sometimes up to 90 or 120 days. However, a good Real Estate Consultant can show every possible house that you would be interested in, in a certain area, in just a couple of days. Current technology enables you to narrow down the selection of your new home from the computer in just a few hours. Buying first and selling second normally has such negative consequences that we call it the “Reverse Sales Process” it is also referred to as the “Backwards Sale Process.”

 What if the market is hot and the inventory is down and you are worried about not finding a house and you have already sold yours. There is a solution to that as well. Common practice is that when you accept the offer on your house put a clause in it that gives you a few days to find a house. The clause would state “This offer is subject to the seller finding suitable accommodation on or before (insert date about a week down the road).” In a very hot market you are getting top dollar for your home, so the inconvenience is worthwhile. Also, in an overheated market, if you are not a cash buyer free of any encumbrances, you will have to pay top dollar to get your dream home.

 As you can see, if you can be patient, statistically you can put around ten thousand dollars more in your pocket if you do not reverse the transaction. If you apply that 10k to the principal of your new home it will save you an incredible amount of interest.

Blog Archives

Tags