I realize this is a rather general question, or set of questions, so I’m expecting this thread to go all over the place. And I know I’ve posted elsewhere about staging a house for sale; this is a different question.
My query: what’s the conventional wisdom nowadays about contingency sales in such a hot real estate market? Twenty-three years ago we did a contingency sale, but now in 2022 I see properties in our destination area getting snapped up rather quickly. Is it better to sell one’s home, move to a rental in the new area, and have cash in hand so you can jump on the new place? Or is it safer to go the contingency sale route?
I’ve emailed a couple of realtors (who have left flyers on our porch breathlessly extolling their awesome desire to help us), asking for their input on this, none of whom have returned my emails.
In a hot real estate market, it is going to be more likely that you win a bid and close on a home if you are setup for a fast close. Not needing financing, being fully underwritten, being able to commit to a “10 Day Close”, being willing to waive inspection et al. are all things that absolutely will help you close on a house.
There will be an advantage in your likelihood of winning a bid if you have a completely sold house and have cash in hand, and it will look different to the seller vs a person they know has to complete a contingency sale. A home sale contingency in traditional times typically involved a 30 or 45 day clause which is significantly longer than many sellers will want to wait in a hot market.
Now, that being said–there are still lots of homes on the market. I try to tell people this–yes, investors are buying up a bit more properties than they once were. All cash buyers are a bit more common than they were. But a good chunk of homes even in hot markets are still going to regular buyers in typical pre-craziness transactions. The hitch is you are going to likely wait, and lose a number of bids before getting to one where you succeed.
The real question would be how long are you willing to wait, and how many bids are you willing to lose to be able to complete a purchase with a home sale contingency vs what are the impacts to your household finances and other factors of having to sell, move out of your home, and live in a rental for a time. Note the rental market is pretty aggressive now too, with high monthly payments and many landlords are not even offering short term leases in some markets.
ETA: I don’t know your region, but I have a friend in Northern Virginia who just completed a new home purchase that was contingent on the sale of his previous condo. He spent around 3 months getting there and lost 5-6 bids on houses along the way, but it did get done–and in one of the hotter markets in the country.
As has been said, in a hot real estate market, with lots of qualified bidders, you want your offer to be the best for the buyer it can be, which normally means a quick cash sale. By cash I mean the financing is lined up and already approved. Waving inspections helps, but a quick close is key. If someone offers to buy your house, but they have to sell their house first, that adds a lot of unknowns for the seller.
Depending on your area, you may be in a hot market right now, or it may be cooling off. If it were me I would sell my house, consolidate all of my finances, and make a cash offer with a quick close on the house I really want when it comes up for sale. Many agents know about houses coming on the market even before they are listed. That may mean I have to rent for a few months, but making offer after offer on houses and losing them would discourage me so much that I might choose to relocate somewhere else.
In my case, we found the perfect house after looking for about 3 months, and it already had an offer on it with a bump clause, meaning the buyer had to sell their house to close the deal. The sellers were divorced and anxious to get out of the house. Since the seller was taking backup offers we swooped in and made a clean offer with a 30-day close. We hadn’t sold our house yet, but we had enough investments to cover the purchase of the new house and therefore had no problem securing a bridge loan. We required inspections, and the seller had to fix a number of things that we didn’t have to pay for.
To the seller, it was a quick cash deal and the buyer in front of us could neither sell their house nor come up with the money to buy the new one. We ended up with the house we wanted, sold our house, and paid off both mortgages.
If you aren’t super particular about which house you get, you could try contingency offers on houses which have been on the market for a while. Houses just listed probably won’t accept contingency, but ones that are still listed weeks or months later may be willing to entertain contingency offers. These houses probably won’t be the most desirable ones, but you may be able to get them at a more leisurely pace and at a better price.
How are you looking at houses in a different area? Sometimes people far away have to make an offer just from the listing or realtor walkthrough. The houses get snapped up too quickly to plan for travel to see it in person. I would think in this case, it would be best to sell your house, move to a rental in the new area, and start house hunting. That way you can jump on newly-listed houses and see them right away.
“. . . How are you looking at houses in a different area? Sometimes people far away have to make an offer just from the listing or realtor walkthrough. The houses get snapped up too quickly to plan for travel to see it in person. I would think in this case, it would be best to sell your house, move to a rental in the new area, and start house hunting. That way you can jump on newly-listed houses and see them right away.”
We’ll be moving from the San Jose, California area to a little south of Portland, Oregon. That makes jumping on a newly listed house kind of hard. Reading the answers so far, I’m leaning towards the notion of sell/move to a rental/quickly move on a house with cash in hand and a short close. All of this depends, of course on how hot or not hot the real estate market is in each area come next April.
We’d really rather not settle for a poorer place in a less desirable neighborhood, as that’s what we’ve had for the last twenty-three years. In our old age we’d like to be in a well-kept standalone house in a safe and clean neighborhood.
I expect that it is not a hot real estate market at all anymore since mortgage rates have gone up by ~2 points in the last 2 months.
After 2 years of houses getting multiple offers over asking within a day or two of listing in my neighborhood, our neighbor listed her house at a reasonable-ish price based on comps and got… 1 lowball in a few weeks.
That could change by next April but it seems unlikely to do so.
Just a lot fewer people can afford to buy a house with rates at 5% than they could at 3%.
Get in touch with a few realtors in the new city and see what they think. They will know if houses with contingency have a chance there or it’s mostly cash offers. It’s probably good to start a relationship with a realtor there anyway so you can get the scoop on the area and which houses are good deals.
Location, location, location. The Bay Area has such a small inventory of homes that it is still a hot market here. Selling, renting with a flexible lease, and then buying seems the way to go, especially because living in a place gives you a much better idea of what areas are good then just visiting. And if ten of your offers get rejected, you have some place to live cheaper than a hotel.
When we sold our house in NJ 25 years ago we refused offers with contingencies. That turned out to be good, since the people who made an offer on our house (during the Open House) and problems with the people buying theirs. We were able to tell them to close or we’d put the house back on the market. They closed. With a contingent offer we wouldn’t have been able to do that.
This is what my sister and b-i-l did when they all moved to the PNW to be closer to their daughter and her family who moved a year ago. They sold their house in Ventura County before it went on the market (for about $40K over asking), so they could make good offers on a potential new house. They lost the first one they went after because it had an unrealistically low original price and started a bidding war. They got the second one not long after that for right around asking (and less than the first house). I like the second one better in any case.
Hey, a realtor called me back! Nice articulate non-pushy guy who outlined the advantages and disadvantages of contingency sales vs. cash in hand. Long story short, cash in hand is better, even if we are seeing the hot market slow down due to higher interest rates. He reminded me of of the existence of “lease back” of the current home you’re selling so that you can continue to live there for a couple of months while you hunt for the new place. I think I was aware of that many years ago, as it sounds familiar. That sounds like a viable option.
Lease back depends on the buyer being willing to do it. When we bought in NJ we were living in town on a month to month lease, and we led the seller do it, since construction on his house was delayed. Worked out great. Our lawyer carefully structured the deal so that he was not officially renting from us, since that brings in landlord tenant law and can screw things up.
I think it is highly dependent on the area. Where I live there is very little inventory and lots of buyers with cash in hand looking to purchase. How do I know? I have real estate agents constantly stopping me and asking me if I am interested in selling, and when a house goes on the market in my neighborhood it usually shows as contingent within 24-48 hours, meaning somebody knew it was coming on the market and had an offer ready. I don’t think interests rate matter much to high-end buyers. So for some neighborhoods, it’s still very hot and competitive. For other, less affluent areas, not so much.
That exactly describes my neighborhood a month ago. I live in a desirable neighborhood in a city that’s growing much faster than its housing supply. Zillow says my house is worth almost twice what we bought it for two years ago.
It is here where I live. Why would it change? There are few available properties and the demand is still as high as it ever was. Buyers are patiently waiting for someone to list their house with their checkbooks at the ready.
When I’m trying to get an idea of what to expect for our house, I look at all the estimates on Zillow, Trulia, Redfin, and Realtor. I’ll only count on the lowest one, and that way I won’t get a bad surprise when we come to sell.
For one thing, we share walls with truly crapass neighbors, and the websites’ algorithms can’t take that into account. The neighbors will sure be visible to potential buyers, though.
Still, we’re in a good neighborhood within easy commuting distance to Silicon Valley, and we’re hoping that trumps crummy neighbors.
I grew up in the Bay Area (West San Jose) and having an easy commute to Silicon Valley is a big plus. I worked in Silicon Valley for many years and I knew coworkers who would drive in from Tracy or Hollister every day… and complain about their commute every day.
You have no control over the neighbors so don’t sweat that, however, if their messiness borders on a health violation I would contact the local authorities.
I would interview a half dozen real estate agents and have them do a comp analysis for your home to see what they would price it at, but beware of agents that high-ball you just to get your business and then end up dropping the price dramatically after two months of no little to no activity.
Because interest rates went way up and most financial assets went somewhat down. Both of those affect demand for property.
But anyway, you are correct that the property market is not a monolith and perhaps there are places where people are today getting multiple cash offers over asking on listing day. There are certainly many fewer such places than there were two months ago.
A friend of mine just sold their house in 3 days. 15 showings, 5 offers, all over asking, and it was an “unusual” house in a somewhat remote area, however they had fenced acreage and room for horses.
We may be outliers, but things are very hot still here and the interest rate increases haven’t had much of an impact (yet). These houses are selling for $800K and up, so this isn’t the low-end of the market, which may be more sensitive to interest rate hikes.