Buy - Sell or Sell - Buy? One will cost you!

One very apparent trend that I have seen during my short tenure in real estate is that, whether moving up or down, many sellers want to find their next home before listing theirs.  I first of all want to say that I understand the impulse to proceed with this approach.  It's not easy making a change and a lot of people have an easier time proceeding forward when they know what they are doing next.  

With that being said, its far less than ideal unless you can afford to own two homes at once.  

[I apologize for the long post but this is an important discussion and i urge you to read it through]

Let me explain how it will cost you thousands... 

Here is the problem... Let's just say that the Jones', whom just had their third child, are moving from their 3 bedroom bungalow to a 4 bedroom two storey in a nicer neighbourhood to better situate their larger family.  Their bungalow is worth between $200,000 and $210,000 according to market research and they are pre-approved up to $325,000 but only plan on spending $300,000.  Despite advice from their Realtor, the Jones' want to go out and find a house before listing theirs.  So their agent lines up 5 nice properties that meet their criteria for a nice saturday morning.  They go out and, guess what, the third property they see if perfect for them... They want to make an offer. 

So since the Jones's, like about 90% of homeowners have what's called frozen equity and can't purchase another home without first selling theirs, must make their offer conditional on the sale of their property.  From a sellers perspective, a conditional on sale offer just represents something that hypothetically exists.  It's basically saying that, "we will buy your house if and when we sell ours."  So, first of all, if there is anyone else interested or if anyone comes to the table with an offer conditional on just financing and home inspection, then the Jones' are either out of luck or are, at best, going to have to pay a lot more in order to get the sellers to accept their offer.  If nobody else comes to the table the Jones' are obviously in a better position, but are still going to need to pay extra due to the perceived strength of their offer because of the condition on sale. 

The condition on sale also forces the Jones's to extend the closing date to give them time to sell their property.  In Woodstock I would generally suggest to have 60 days to sell and another 30 days to account for closing on their property, for a grand total of 90.  Not a number that rests within most sellers plans.  Putting a number on it is difficult but, speaking very generally, I would say between 1 and 2 percent more.  This obviously depends on various factions including market conditions, days on market, closing dates, etc.  Either way, in this case, the Jones' could paying $3,000 - $6,000 more for the property then they would be from a stronger position.  

Let's just say, the Jones' get the property with the condition on sale.  They now have 60 days to sell their property or the deal will become void.  Oh, and just so that it's fair, the sellers are still able to offer their property for sale with what is called an escape clause on the Jones' offer.  This means that if they get an unconditional offer at any time, the Jones' will only have a couple of days to sell their house.

So, now the Jones' are on the clock.  It's time to get that property listed immediately!  Ordinarily, myself and many other agents recommend de-cluttering and staging to sell a property.  It increases traffic, which increases demand and thus has a positive affect on the sale price.  But, due to the nature of the Jone's situation we simply need to get it listed so that we can start driving traffic and hopefully get a quick offer.  

As stated above, the Jones' house is worth between $200,000 and $210,000.  With staging and a properly prepared listing, the Jones' may have been able to list the property at something like $209,900 with a pre-planning marketing roll-out designed to drive the increased traffic needed to get a great offer.  The problem with this is that it takes time.  Walls need to be painted, rooms need to be emptied, stagers need to assess the situation and then stage the home.  Professional pictures and videos then need to be taken so that posters, flyers and websites can be designed and readied for roll-out.  This process can take a couple of weeks to be done right.  But, since we don't have a couple of weeks, we must take a much more aggressive line with the listing price and start the listing out at $205,000

The first couple of weeks go by with some good showings but still no offers when the Jones' get served notice from the sellers.  They now only have 48 hours to sell their house or they will lose the property that they love!

They now have a choice to make... Either they give up the house or they need to reduce their price so that the house sells TODAY.  So, the Jones' decide that the house across town is to perfect to give up on so they bring their price down to $199,900 in order to get an offer.  

Now that the price is right for more buyers, the Jones' are able to get an offer but still need to match up the closing dates to make everything work perfectly.  Ideally, the buyers would have liked to close in 30 days but the Jones' are still about 60-70 days from their closing date at their new house. This means that the buyers must stay in their rented house for an extra month.  A point that their agent was sure to bring up during negotiations.  Ordinarily, the Jones's wouldn't have taken a penny less then $199,900 as it's already below market value, but in this case they choose to reluctantly take $198,000 because they need to make it work with these buyers today.

Let's do the math on this....

The Jones' paid approximately between $3,000 and $6,000 more for the new house.  Let's call it $3,000 to be conservative.

They then took $198,000 for their house.  $2,000 under market value in the houses current condition but possibly $8,000 (If sold for $208,000) less then what they could have got with paint, de-cluttering, staging and a properly executed marketing plan.  Lets call it a loss of $5000 to be safe, as they may have needed to spend $1000 on paint and storage.  

When we add it up the Jones' net a loss of at least $8,000 by not approaching their move in the correct manner.  [Potentially could be a loss of $6,000 + 7,000 = $13,000 if we look at their worst case scenario]   

Would you still want to find your next house first?  


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Devon Young

Devon Young

CENTURY 21 Heritage House Ltd., Brokerage*
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