Our homes create the context for so many of the happiest moments of our lives. But sometimes, the process of buying or selling a home gives rise to some pretty fright-filled experiences. We all have heard loads of stories about the nightmarish moments that are part and parcel of buying or selling a home in a down market. But a rising market doesn’t exempt any of us from becoming the character in our own real estate horror story.
This Halloween week, here are a few of the more common hot market horror stories we hear about, along with some “tricks” for making them go away.
Horror #1. The Headless House Hunt(er). When you’re constantly running into rising prices and multiple offers, it’s critical to be flexible with your house hunt wish list. But that flexibility sometime results in so many changes to your wish list that you end up feeling aimless, directionless, and like you are letting the market dictate what sort of home you can buy. And that’s not a great feeling, when what every buyer wants is to approach their house hunt with intention, direction and clarity on their wants and needs.
That feeling of directionlessness is very ungrounding, and sometimes even results in near-immediate buyer’s remorse. That scenario looks like this: your 42nd offer is (finally) accepted, you turn to your agent, spouse or yourself in the mirror and say or wonder, “Wait: do I really even want this house?!?!”
There’s a fine line to walk between wisely conforming your house hunt to the reality of the market and being aimless or, headless, so to speak. One way to help manage the emotional discomfort and potential for post-purchase regret is to invest some time documenting your intentions and vision for your next home and the life you’ll lead in it, in writing, before you ever even go meet with an agent.
Before you start thinking about your house hunt in terms of specific neighborhoods, bedrooms and square footage, put pen to paper (or fingers to keyboard) and detail how you want to live in your next home. Touch on everything from:
How you’ll get to work (examples: by car, public transport or working at home)
How you’ll spend your spare time (examples: entertaining, doing DIY fixing, at the neighborhood yoga studio or wine bar)
What sorts of activities you envision your family engaging in (examples: traveling the world, training the dog, skiing every weekend in winter and hiking in Summer)
Getting the big picture vision down on paper does two things. First, it creates strong clarity and direction about the more granular details of the homes that should fall within your search and also empowers your agent to suggest properties and neighborhoods that could fulfill this vision which you might not otherwise have gravitated toward.
Second, it creates a reference document that allows you to check in with your own gut once you’re in contract, minimizing buyer’s remorse and wayward, in-the-moment decision making. If you make lots of changes to your property criteria during the house hunt and are concerned that the home you’re buying reflects too many compromises, consult with this document. If you can envision most of these life wish list items taking place in that property, you’re probably in good shape. If you can’t, at least you’ll know that before you remove your contingencies, so you can make a conscious decision that you’re okay with the compromises or that you want to back out of the deal, before doing so becomes costly or irrevocable.
Horror #2. Hot Market, Cold Listing. Few real estate matters are worse than reading that your market is hot, hearing your friends are putting in over-asking offers, seeing your neighbor’s house fly off the market, and watching your own lag on the market without a single offer in sight. I find that sellers in these situations often over complicate and overthink things, when the reality is actually simple and stark: 8 times out of 10, a home that is taking much longer than similar listings to sell is overpriced.
[The other two out of 10 include homes that really do have some serious issue or flaw which makes them inappropriate for most buyers, and the occasional home that is undermarketed: no photos online, hard for buyers to get into, or poorly staged for sale (e.g., dirty, smelly, etc.). It does make sense for you to do a quick audit of how your home is appearing on Trulia and other real estate websites, if your home is lagging. And it also makes sense to listen hard to property preparation advice your agent is giving you. But most of the time, overpricing is the issue.]
Understanding that your home might be overpriced is simple. But understanding the comps and adjusting your price to hit the sweet spot of local buyers is more complex. That’s why you have an agent, who is happy and has the skills to a) help you understand local buyer demands, inventory levels, seasonal market dynamics and comparable sales data, and b) wrap all of these indicators into an appropriate pricing strategy.
And that’s why it’s important that you select a listing agent with a track record of selling homes in your area. It’s a bit less harrowing to trust an agent’s frank pricing advice, even when it hurts, when you know it has worked for many sellers before you.
If you’re horrified at the prospect of a price reduction, ask your agent to walk you through comps of recent listings with a history of price reductions in your neighborhood, exploring questions like:
What price did they start at, and what price did they sell at?
Where was the pricing sweet spot?
What level of reductions were effective at getting homes sold?
Which reductions were followed by a series of additional reductions before sale?
Fixating on the facts and figures around recently sold comps can help you make price reductions driven not by desperation, but by smart, data-driven strategy well-calculated to end the nightmare.
Horror #3: A New Flavor of Stuck. When the market is rising, an aura of exuberance can take hold. There’s a feeling of freedom among those sellers who patiently waited out their underwater status and finally start to feel their heads (and mortgages) rise above water. That freedom is the freedom to sell without penalty and to move freely, whether in town or about the country (or the world, for that matter).
And so we’ve seen it happen, that as the market has begun to thaw, so have many homeowners’ feelings of being stuck in their homes. And as they have started to sell, a new conundrum begun to rear its ugly head, and it goes like this: the hotter the market, the easier it is to sell – but also, the more difficult it is to buy. If you stand to get dozens of offers on your home, and you’re aiming to buy an even bigger, better place in the same town or neighborhood, you could very well face the same level of buyer competition, bidding warfare and over-asking sale prices as you benefitted from on the “sell” side.
We’ve seen sellers get unstuck from an upside down home, sell and then end up renting or – gasp! – moving in with the in-laws when they get a taste of this new flavor of stuck: being finally able to sell, but unable to buy.
Fortunately, there are a few methods your agent can help you deploy to avoid this seller-side Catch 22:
Seller contingencies. It is an increasingly common practice for sellers in hot markets to make their home’s sale contract contingent upon their ability to find and secure their next home. Talk with your agent about how this works and the advantages and disadvantages of seller contingencies.
Buy first. Finances permitting, you might be able to actually buy your next home first. This is not without risk, as there’s never a 100% guarantee of what you’ll be able to sell your home for – or when you’ll be able to sell it. But if your ability to buy is not strictly dependent on your ability to sell, if you are financially comfortable with holding both properties for a period of time, or if you’re otherwise willing and able to weather the risks given what you know about your own home’s likelihood of selling, it might make sense for you. Have this conversation with your agent, as well as your mortgage broker, and tax or financial advisors.
Seller rent-back. Selling first is the least financially risky option. But if you want or need to close escrow on your old home to get the cash for your new one, talk with your agent about negotiating a rent-back into your contract. A rent-back allows you to close escrow on your home’s sale, but rent it back for a few weeks or longer from your home’s buyer while escrow on your next home is closing. Rent-backs often give rise to mortgage, contract and insurance issues, but most experienced agents and brokers can help you address them, especially if you only need to be in the property for a short time after closing.