Upgrading Apartments? Sell First!
A: A very important post for those existing homeowners in NYC or anywhere actually, looking to sell their home and upgrade to a bigger one. This post doesn't apply as much to those looking to cashout and downgrade, leaving them with extra cash as 'extra cash' or lack thereof is exactly the purpose of this article. In a nutshell, SELL FIRST, then look to buy!
In the world of real estate, searching for a home is usually more exciting than selling a home; this rings true especially in today's market that is seeing a combination of rising inventory and slowing buyer demand. But, you MUST be careful not to fall into the very big trap of buying first and selling after; unless of course money is one luxury you do not have any worries about.
For the most part emotion plays a critical factor in this scenario as most homeowners who plan on selling hold off on putting their apartment on the market, and start to look for a 'place to go' first. That is fine and nothing wrong with that, except that if you are counting on the equity from the sale of your home to finance the new and bigger home, you could run into some very big problems. Mainly:
1. The Unknown Factor of Price - Before you buy a home you must always do the math! What do you have, what can you afford, what interest rate will you get, what will your monthly payments be, and is it feasible? First time homeowners with no home to sell must do this to make sure they are NOT buying too much house. Existing homeowners must do the same. Until you know exactly what price you will get for your co-op/condo/townhouse, you should NOT sign a new contract of sale!
Information is power! Lack of information puts you in a weak position. Before you do the math of calculating how much house you can buy, WAIT UNTIL YOU HAVE A SIGNED CONTRACT ON YOUR EXISTING HOME so you know exactly how much profit after the deal is left in your hands! You never know what the eventual sale price will be, especially in this housing market!
2. Longer Time on Market To Sell - A no-brainer here. If you have been reading ANY real estate section in any major paper, you will know that in the major markets housing is slowing, # sales are declining, inventories are rising, and time on market is growing. With this knowledge I ask you: DO YOU REALLY WANT TO BUY FIRST AND BE FORCED TO SELL LATER WHEN YOU WILL NEED ACCESS TO YOUR PROFITS TO BUY THE NEW HOME?
The answer is NO, you don't! The worst position you could put yourself in is buying a home first with the anticipation of using the proceeds from a later sale! What if your home doesn't sell in time? What if your home sells for a lower price? Too many what if's, and big ones too! Don't let your emotions take control of your financial decisions and be disciplined to pass on what may be the perfect dream home if you still haven't sold your home and are planning on using the profits for the next purchase! I know its hard, but at least you won't be in a position where you are forced to sell super fast and the only way to do that is to lower your asking price to way below market value to attract a fast buyer!
So what do you do? Assuming a 2-3 month timeframe between contract signing and closing, here is a simple 1-2-3 guide to use should you fit into the situation described in this post that will help you avoid making the mistakes mentioned above.
Existing Homeowners Guide To Upgrading
1. List Your Apartment For Sale & Learn Product Knowledge For Your Upgrade - Market your property and before you get a signed contract for your home, go out and learn product knowledge for the price point that you think you will fit into for the upgrade. If you are selling a 1BR, then learn what 2BR's are selling for in your neighborhood of choice. If your selling a 2BR, then learn what 3BR's are selling for in your neighborhood of choice; and so on. What are average monthly expenses for your price point? What amenities are you getting? Is light and views hard to find? Do most have light/views leading you to focus on a better location? What interest rate can you lock in? And so on.
NOTE: That I mention 'learn' product knowledge and NOT 'buy' on impulse! This first step is to simply give you an idea of what you might be able to get, and what it might cost you. In essence, you should become an expert on the new home you are planning to buy BEFORE you buy it.
2. Get A Signed Contract on Your Existing Home - List your apartment for sale, learn product knowledge of the price point you are thinking of buying later, and WAIT for a contract of sale on your existing home. This might take 2-5 months, so you have no excuses for NOT being an expert on your future home purchase before you buy. Avoid impulse buying and be disciplined to wait until your deal is done and you know your purchase price and the amount of profits expected that can be used for your future purchase!
3. Move Into High Gear & Go For It - The fun part. Now that you have a signed deal on your home and are an expert in your price point, go into full gear! Hire a broker (no fees) and tell them your ready to go ASAP, or spend at least an hour a day on your own looking at current inventory. Go to at least 4-5 open houses on Sunday's and try to see at least 2-3 places during the week! You are now free to make a bid and you can even use the contract of sale on your existing home as an asset on the board package to show profits expected.
NOTE: You are in a buyer's market and just like you most likely did when you negotiated the price of your existing home, you can negotiate the price of your future home! This really is an artform and you should structure your bids according to the ultimate purchase price you wish to pay for the new home!
Not rocket science I know, but something that existing homeowners sometimes fall prey to and look back on as one of their bigger financial mistakes! If you buy first, it better be because you have the luxury of unlimited funds. If you don't, then take my advice and SELL FIRST, BUY LATER! Ideally, you would like to sign a contract within 3-4 weeks of getting a signed contract on your existing property so as to co-ordinate the closing dates as close as possible. You might need to extend the closing date for your existing by 1-2 weeks and expedite the closing of your new home by 1-2 weeks to do so, but that is certainly something you can prepare for.
Good Luck!
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