Here’s a situation that is not so uncommon in our business:
A couple feels blessed that their family is now growing and would like to move into a larger home. They do not have the financial ability to pay two mortgages for more than a few months, but they also feel that they are at a point where moving sooner rather than later would be better for them.
Getting excited about the prospect of a new home, they go shopping with an agent, find something they think would be just right, in a school district and neighborhood they like, and even in their price range! They know this house won’t last long on the market, so they want to put an offer in now. One problem: even if the bank approves their loan, they know they won’t be able to make two mortgage payments, so they are left with a difficult choice. Do they:
- Submit an offer that is contingent upon them selling their old home? – in which case the sellers of the new home they want might not want to take a chance on them;
- Submit an offer that is NOT contingent upon them selling their old home? – in which case they will just hope that either:
- They will be able to sell it before or within a couple of months of purchasing the new home; or
- They will be able to rent it out to a stable renter who will pay on time and not drive them crazy, since they never wanted to be landlords in the first place.
This is a very difficult decision for many home sellers. Some otherwise very thoughtful and careful people, when faced with what is perceived as a pressing family need, might choose option B and wind up in a very dangerous financial situation within only a few months of closing on the purchase of their new home.
Thankfully, even the standard forms available in the market address this issue and Sellers should never allow any amount of salesmanship or fear of losing a home to drive a wedge between them and what they know to be true about their own financial situation. Our firm once witnessed a Seller in this difficult situation and, while it was too late for our help by the time the Seller came to us, it was hard not to see that house stay listed for sale for over 12 months and to think about all the good that could have been done with that money spent on a mortgage for an empty home…all the charities that could have been helped, businesses that could have used a little seed money, the other debt that could have been paid down with those dollars that seemed to just be going down the drain.
In our next blog post, we plan to explore, “Not Negotiating the Terms of ‘Standard’ Contracts” (#7 of the 15 Mistakes We See Home Sellers Make Most Often). We hope you find the information helpful.
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