Selling your current home and buying a new home at the same time can be a difficult and stressful maneuver. I am going to outline how to do it using two financial instruments you may have heard of but may not know exactly how they work. I will show you how to apply them to your situation. The instruments I am referring to are the right of first refusal and an option to purchase.
The problems we run into when we sell and buy at the same time are the possibility of either having to own two homes, with potentially two mortgages, or being homeless for a while. One solution is to just sell your home for as much as you can get and then rent for a short period of time until you find the right new home. But then you must move twice and who knows how long it will take to find your new home. It isn’t easy to find a rental with that much flexibility. Even if you have enough cash to hold both properties at once you have to deal with the uncertainty that comes with the situation. The uncertainty can in turn cause stress.
In a low inventory marketplace like we have had recently It can take some time to find the right home. So it is much better to identify your new home first and somehow get it tied up under contract before you sell your current home. You could try to make offers with contingencies that allow you to sell your current home before closing on the new one. Those are hard offers to get accepted. Most sellers won’t accept the uncertainty that goes with that kind of contingency. Especially in a hot market.
So rather than making offers with contingencies, using an OPTION, may be the better play. An OPTION is the right, but not the obligation, to purchase a property at an agreed price within an agreed time frame. An option to purchase is not refundable and you are not obligated to complete the sale either should your situation change. An option buys you time to sell your current property. Whatever you pay for an option is typically applied to the purchase price. An option is easier for a seller to accept because they know that no matter what, that money is theirs.
How big of an option should you offer? It can be whatever you want or whatever it takes. It helps to know what is motivating the seller. How much time they are willing to give you and how long do you think it could take to sell your home. For example, it could be 3% of the purchase price for a six-month period. It could even be a much smaller amount but paid monthly instead.
An option can be combined with a lease as well. A seller may accept to lease you their home with the option to buy it. Then once you sell yours you have the cash to buy and only have to move once.
What if you can’t get the seller to accept an option at any price? Offer purchasing a RIGHT OF FIRST REFUSAL. This allows them to continue marketing their property while you are selling yours. If they get an offer they can accept they must allow you to match it and sell it to you. This is probably less desirable for you, but it should buy you some time to sell your property and will likely cost much less.
I am only scratching the surface of how options and right of first refusals can be used. They are both timing a mechanism. They are both financial instruments that can bought and sold as well.
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