The Homebuying Domino Effect

If you know in no uncertain terms that you’ll need the proceeds from your current home to purchase your newly built one, you may be asking the builder to entertain a “contingent” offer. Not all builders in all markets will consent to contingencies, since they can choose not to deal with them. But in situations where builders release lots long in advance or when a buyer-friendly market becomes the rule, they still do happen.

Contingencies in real estate contracts are safeguards for both buyer and seller that set conditions on the purchase, permitting both buyer and/or seller to walk away without penalty when the criteria agreed to has not come to fruition.

This means that the builder may agree to have you select a floor plan and home site and complete a purchase agreement to buy one of their homes, wholly dependent (contingent) upon the successful sale and closing of another property-- in this case, your current home. For that privilege, however, the builder has the right to continue to market the home site you have selected to other buyers who do not have contingencies. If the builder does receive an offer to purchase your home site by someone who does not have a house to sell, the builder will customarily utilize a clause in your purchase agreement that gives you a certain length of time (usually 72 hours) to decide if you have the wherewithal to remove your contingency – in other words, to go ahead with the purchase without waiting to sell your home. This is customarily referred to as the “first right of refusal,” giving you priority over any other contingent buyer.

Contingencies like this can be useful and can work to your advantage if you use them properly. We’ll discuss that in a minute. But if you want to tie up the builder’s lot without having to make your offer contingent, today’s lenders offer many creative loan programs to consumers who would never have believed that they could qualify to purchase another home without selling the one they’re in. There are many questions you must ask yourself before opting for one of these types of loans, since doing so involves calculated risk-taking on your part.

First, are you willing to list your home with a reputable real estate consultant? Builders tend to shy away from contingent deals unless you are willing to expose your property to the vast market of potential buyers offered by the MLS, or Multiple Listing Service. But even if you decide not to make a contingent offer, it’s not the best idea to attempt selling your house on your own unless you have an inordinate amount of time, money and real estate marketing expertise. FSBOs (for-sale-by-owners) can have a scant success rate and offer you none of the safeguards and protections real estate agents offer. Nothing exposes your home and sells it faster than listing it on the MLS, offering a cooperative fee to a buyer’s agent, unless, of course, you know you’re selling it to your Aunt Minnie and it’s a no-brainer. Even marketing your home on FSBO web sites can prove woefully inadequate, since potential buyers who visit them tend to have short attention spans for so few listings in comparison to having access to the MLS, where thousands of homes are available for viewing.

A qualified real estate professional can show you a price range for marketing your home based on homes that have sold recently and closed escrow, are currently on the market, or whose listings have expired in your area. The comparative information you will be given should be as close to the size, quality and amenities to yours as the agent can find. One of the most important factors to consider beyond pricing, however, is the average “days- on-market” of homes in your neighborhood.

You can place yourself in a “Catch-22”, however, whether or not you make a contingent offer to the builder, and depending on when your new home is slated for completion. If it becomes evident that the market dictates a 90-day timeframe to sell a home like yours -- and your new home will be completed well before that time frame -- you face a dilemma. You may face the prospect of having to shell out more than one mortgage payment by the time your current home gets into escrow, even if you don’t receive the first payment coupon on your new home for a month or so. For situations like that, speak to your loan representative about the possibility of a “bridge” loan – a short term loan to cover this reality. This type of interim financing gets paid off in escrow when your old house closes and offers you the ability to get into your new one.

If, by the same token, the new house you are purchasing is not due to have its final nail hammered in place until seven months down the road -- and your current house sells within that same 90-day timeframe, you’ll need to think about interim housing, along with the prospect of storing of some or all of your belongings until the new house is completed and ready to occupy. The most important thing to be prepared for when moving from one property to another is the ability to be flexible. Have a contingency plan of your own, making arrangements to stay with relatives for a few months or finding a short-term apartment rental.

If the builder you are purchasing a home from entertains contingent offers and you’d like “test the waters” of marketability of your current home, there is no reason not to draw up a contingent contract, even if you have the capacity to remove the contingency no matter what happens in the sale of your home. It buys you time to try to get the highest offer before making a final commitment to the builder and reserves the right for you to remove the contingency.

When listing your home with an agent, it’s important to explain your needs to them. They will want to gear everything to the time frame you’ve given them and try to get the highest possible price so that your walk-away dollars are maximized after the remainder of the mortgage, their fees and seller-paid costs are deducted. If it’s a safe bet that your home can and will sell within a month or two before your new home is completed, your agent can structure you accepted offer to reflect the time frame that works for you by going for “concurrent closings” or by asking the buyer to “rent back” the house to you for a period of time after they have purchased it from you. Always leave a cushion of time between the closings, however, since there may be delays in taking possession of the newly built home. With your real estate agent in the loop, he or she can structure the transaction for “close of escrow plus three days’ rent-back,” for example.

There are reasons some transactions have the capability of creating a domino effect. If the buyer of your home has a home to sell and vacate -- so do you -- and in essence, so does your builder -- this sequence can all fall apart, leaving a trail of unhappy home sellers and home buyers, with you squarely in the middle! Your agent will want to look for buyers with solid loan pre-approvals and no contingencies, so that this “house of cards” does not topple.

Let’s look now at how you can stack the cards in your favor when selling your current home by taking lots of lessons from the experts – homebuilders! Remember our chapter about model homes and how builders appeal to buyers’ emotions when merchandizing their models? It’s now time for you to stop referring emotionally to your house as a “home,” put on your marketing hat and think of it as a product to be sold to the highest bidder. What do buyers like to see when they tour a home? What did you look for in a new home? Knowing that you’re buying new, you no doubt wanted it to be clean, uncluttered – a place where it’s not difficult at all to picture your belongings.

It’s important to note again that it is estimated that approximately three-quarters of home buyers have gone onto the Internet and narrowed down what they’re looking for in a house. So the people who ask to be shown your house have already usually seen the factual and functional data – the number of bedrooms and baths, the lot size, the square footage, etc. -- and they know the age of the home. They may have already seen the digital photos your Realtor may have posted on the listing. But their impressions of what they have examined can change dramatically when they walk through the front door.

The place you are selling may be decades old, but you can take lessons from model home merchandisers in getting it ready to sell so that it exudes as much excitement as a new home. In re-sale vernacular, this is called “staging.” Lights – camera – action! Your house is about to be put on the public stage, showing off all its best features!

Some sellers will look into the services of a professional “stager”, someone with a merchandising design background who can consult with you to tell you what needs to be done. But your agent can make plenty of suggestions without your having to pay someone to stage your home if you don’t want to, since they are experts are knowing how to get top dollar for homes in your area.

Tour your house slowly and deliberately with your Realtor. Start with the exterior and make notes on what you see that may indicate to a potential buyer that work needs to be done. Then, stand in the outside entry. Is there something soft underfoot?

What will they touch? Is the door handle glossy and smooth? Is the paint or wood on the door in good condition?

Then walk inside the entry foyer. What will buyers see? Rows of shoes near the door? Backpacks hung on coat racks? Mail piled up on a table? Now go from room to room discussing how you can make changes. The ideal is to place things so that the eye goes out the window, so look at the line of sight. Furniture closer than 18 inches from a door is a barrier. And if there is too much furniture, making the room look small, remove it and store it in your garage, someone else’s garage or a storage unit. Clutter can be weeded out, essential things can be contained in clear plastic storage boxes or merely packed in moving boxes, labeled and ready for your next move.

Collections – like sports memorabilia, painted rocks, display dolls, etc. distract potential homebuyers and can get damaged in the process, so why not pack them away now? Have you covered the walls of a hallway or room with family photographs? Now is the time to take down all but just a few favorites, since they tend to make areas look less spacious and are not as meaningful to others. And remove religious items, political statements or controversial posters, since you want your home to appeal to the broadest spectrum on homebuyers possible. The fastest lesson you can take is another tour through a few model homes to see what decorators do. There you’ll find lots of cute tricks for creating space, drawing attention towards or away from some areas, and merchandising for instant appeal.

Countertops should be cleared of everything but an attractive array of basics.

By scouring stores like Marshall’s, Ross, or Target, for instance, you can inexpensively add some matching counter items, such as soap dishes, guest soaps, real or silk flowers, folded towels tied with wide cloth ribbons and display towels rolled up to make a bathroom look like a relaxing spa. There are plenty of books on staging homes with excellent advice, such as Dress Your House for Success by Martha Webb.

Remember that in reality, our lives aren’t’ as organized or perfect as what model homes portray, but we do tend to “buy into” the feeling of organization, which is part of how builders appeal to our emotions in the first place.

To position your house to get the highest price in the shortest length of time, your goals, therefore, should be to have your house:

• clean to show that it’s well cared for

• uncluttered to show its spaciousness

• neutralized so that anyone can picture their lives there

• in good enough repair that potential buyers can feel that no work needs to be done

• tastefully arranged and decorated so that you are in control of where a buyer’s eye goes in each room

• well-lit with mostly horizontal (and not overhead) lighting and blinds and drapes fully open only where views are attractive

When closet or cabinet doors are opened, arrange items as you would see them in a store, with labels all facing front, taller items in back, or in storage containers. Matching hangers with all clothes facing the same direction and not bursting at the seams with contents are best in bedroom and hall closets.

If you have pets, you’ll need to make special arrangements. Even though Fluffy is the love of your life and wouldn’t hurt a fly, someone who is either afraid of or allergic to Fluffy will turn on their heels and walk out without having even toured the entire house. Talk to neighbors or children about pet-sitting or find pet day-care on days your house will be held open or shown. Products like Proctor & Gamble’s Febreze or Nature’s Miracle, found in pet stores, can be used for odor control on surfaces. But because not all people are fragrance lovers, go sparse on what smells can be noticed.

If you vacate your old home before it is sold and leave it empty and don’t want to do much staging, the best areas to stage are the kitchen, the bathrooms and the entry, since furniture is not required in these areas, but colorful or interesting (but simple) touches can go a long way.