How to buy and sell homes at once without losing your mind

Buy and sell homes at once - what comes first - people with moving boxesIt can be a little nerve-wracking to sell one home and purchase another at the same time. How do you buy and sell homes at once – without losing your mind?

Talk to a lender first

It is a very good idea to talk to a great lender upfront and to be pre-approved. That way, you’ll be more certain of what you can truly afford, and no matter which order you plan to do the two house juggle, you’ll be ready.

The main options when you want to buy and sell homes at once

These are the most commonly used strategies to buy and sell homes at once:

  1. If you have equity, pulling money out of the current house may be an option, or perhaps you can use a bridge loan, you may be able to buy the next home first.
    • In that case, you can move to the new home, then stage and sell the current one. For most people, this is less stressful.
  2. Or will you only purchase after you have cash in hand?
    • With this approach, you could move out and stay in a rental, stage and sell the home and then buy the next residence with cash in hand.
    • Or you could live in the home while it is marketed, sold, and closed.
      • You may be able to stay on after the close of escrow as a renter in your home for up to 60 days. That is often enough time to buy and close on the replacement property.
      • You might be able to have a longer close of escrow and be able to purchase the home “subject to the successful close of escrow” of the current place. This is not the most viable way to buy in our current, inventory starved market, though.
  3. Another option is to move out, rent a temporary residence, sell, and then buy. Depending on the rental, your own belongings could furnish it, or you could have your things in storage.

Possible option 1 – buying first & moving out to sell

If possible, many people doing these two major transactions at once prefer to purchase first. the advantages include not having to move twice and not having to live in a home that is being shown, inspected, and requiring a pristine condition at all times.  For people working from home and families with young kids, this is often the way to go, as it is too disruptive to live there during the marketing and sale process.

You’ve got equity (again) – should you sell, or hold tight?

Got EquityAfter several long, painful years of being “under water” in Silicon Valley, your home now is in the black, that is, you’ve got equity.  You’ve been wanting to move up, or downsize, or relocate – but couldn’t really budge until now.  With the new market conditions, and the freedom to now sell, the question now is whether or not that’s what you want to do.

There’s not an easy answer or a one-size-fits-all response for this, because there are so many variables.

  • If you are moving within Silicon Valley, it’s important to also consider the market for the next home – is it easier or harder to buy a property there? You ideally do not want to sell one place and find yourself unable to buy the next one!
  • If you are making this the last house you’ll own, and are moving to a rental retirement community, it’s much less complicated.  Your main goal may be to sell before the next correction happens so that you get the most possible for your property without risking a market downturn.  Right now it’s good in most of the San Jose area. Will it continue?
  • If you’re selling an investment property or a rental home, it’s a different kind of math problem.  You’ll want to know what the net income and return on investment will be for the condo or house you’re selling vs the one you’d like to buy.  Some markets are ultra hot right now (Menlo Park, Palo Alto, Mountain View, Sunnyvale, Cupertino) and it can be difficult to purchase there, but the rental rates are very high since these are work hubs.  It will be challenging to sell in Morgan Hill or Gilroy and buy in Palo Alto or west San Jose with Cupertino Schools

In many cases, making the decision to sell one home and buy another for any reason (schools, commute, downsizing) will involve analyzing from several angles.  Sometimes it makes sense to pay more but to have a much improved quality of life.  Or it may make sense to get a lesser home in a better school district because you place a premium on education.  In many cases, it’s not about the money, it’s about your goals.   Because it’s a multi-faceted question, often it takes a year or two or more to make the decision after becoming “un stuck” with the reappearance of equity.

But that’s a good problem to have!

Short sales are plummeting in San Jose and Santa Clara County

This evening I had a look at our multiple listing service, which for the Silicon Valley area is, to get a sense of what’s happening with the short sale market here.

I was shocked at the low number of short sale houses, condos, and townhouses for sale in Santa Clara County.  Right now there are exactly 48 single family homes and condos/townhouses for sale (and not under contract or sale pending) in the county.  There are 362 pending and 154 which closed escrow in the last month. To get the absorption rate or months of inventory, we divide the solds in the last month by the for-sale number, so 154 divided by 48 and we get 3.12 months of inventory.  That is fast, but perhaps most shocking is just the low numbers involved at all.  Over the last year, there were 2372 closed short sales, on average a little under 200 per month.

This is a far cry from several years ago, where short sales seemed to be as contagious as the flu in winter.  What happened?

Lots.  First, we have a jobs recovery underway in the San Jose area, particularly in the high tech industries.  Second, we have low interest rates and improving faith that the market is recovering, and since about Feb 1 2012, we’ve had an increasingly deepening sellers real estate market in the South Bay.  That, in turn, has created rising prices and given back some equity to distressed, underwater home owners.  This third item is key: because home owners can see that the tide is turning, in many cases they also can see that if they hang on, eventually they will be in a position of equity again.  Not only that, but rents in many areas are rising rapidly too, making it possible in parts of the county to break even faster by renting out one’s home rather than parting with it for a loss.

Not everyone has it so good!  Today I had a tradesperson at my house doing some post-flood repair work.  He lives in Los Banos, where home values are down more than 80% from the peak.  We have not really seen this in Santa Clara, San Jose and nearby areas – seldom were prices down as much as half!  In Los Banos, it’s questionable whether home prices will ever catch up to the peak.  In Cupertino, Palo Alto, Sunnyvale, Mountain View and similar parts of Santa Clara County, though, home values are at or close to the peak already. (more…)

Delayed Silicon Valley move-up buyers ready to “bite the bullet”, sell for less and move up

Moving up with little equityFor several years, we’ve seen declining residential real estate prices in much of Silicon Valley.  In many areas, though, prices are now either flat or bouncing up and down within a small range such that the probable buyer’s value or market value is very close to where it was a year or two ago.  Today’s San Jose Mercury News reports

“In a report to be released Monday, Clear Capital, a real estate valuations company in Truckee, predicts that prices will remain almost flat this year — compared with a 4.7 percent drop in 2011 — in the San Francisco-Oakland-Fremont metropolitan area, including Contra Costa County. Silicon Valley should see a 1.6 percent increase in home prices, compared with a 2.5 percent drop last year, the company said.” (Bolding mine.)

A small, modest increase in pricing is usually healthy for home sales as it gives buyers the confidence needed to finally take the plunge. It’s immensely challenging for people to buy when they believe any product – cards, home appliances or houses – will be cheaper in a day, a week or a month.

Home sellers who have wanted to move up from a starter home to the one they hope to spend decades in have felt somewhat trapped by lack of equity in many cases.  In others, the idea of selling for less than at the peak was so upsetting that they felt terrible about moving ahead prior to a full recovery.  Most now understand that getting back to prices at the peak of the realty market in San Jose and Santa Clara County will take many years.

Some of them are tired of waiting and are electing to forget about the profit they could have had if they’d sold at the peak.  These folks have decided to make the jump now to get on with their lives, despite less equity than hoped for initially, while at least interest rates are so favorable.  (It should be added that the move-up home will now cost less also!)  This can be a very wise decision since buying a house, townhouse or condo is usually not one purchase but two: you’re buying the loan product also and the total cost of home ownership should factor in both the costs over the lifetime of the loan as well as the purchase price. (more…)

Searching for distressed properties? Not all of them are for sale!

Consider thisThis week I was emailed about a home mentioned on Trulia which seemed “too good to be true”.  It was a distressed property and the reader thought it was for sale for about $650,000 but it is in an extremely upscale suburb on the Peninsula and she could not find the home for sale on our MLS.  She didn’t want to pay to find out if this was a hoax or what, so she asked me to please have a look.

I clicked on her link and saw that it was a feed into Trulia from one of the companies which provides foreclosure information to consumers by paid subscription.  No where did it say the home was for sale, but instead it indicated that $650,000 was the home owner’s loan amount – and that the property had a Notice of Default filed against it.  The house wasn’t worth anywhere near $650,000, of course – instead it’s valued at more than $2,000,000.  (So this would NOT be a short sale – there’s tons of equity in this property.)

Some consumers think that if a home has a NOD, it is for sale.  That is simply not true.  Many homeowners (including some of my clients) have at times missed a payment and then found themselves scrambling a little to get caught up.  It’s not easy but it can and does happen sometimes. (more…)