How to Buy if You Want to Sell

  • Allison Benham
  • 03/9/22

One big concern of sellers these days is that with market conditions as they are, sellers are worried that if they sell their home, they won't be able to get a new one.

We want to lend some insight about how to move on from your current place and get into a new pad.

Sellers who will become buyers have some options.

A. New Build Homes

There are builders with inventory available now and in the upcoming months. We have compiled a list of local builders along the Front Range who have inventory. There are too many (surprising, we know!) to cover here, but if you're curious to learn more about these, reach out and we can discuss what we know.

B. Moving to a Less Expensive or Somewhat Less Competitive Area

If sellers have a home to sell and they also need to buy, it may make sense for them to buy in a less expensive or somewhat less competitive area. For example, after the Marshall fires, the Superior, Louisville and Lafayette markets are extremely competitive as those that have been displaced are trying to purchase back in or near the area where they lost their home. Areas like Erie, Longmont, Broomfield and Westminster, are somewhat less competitive.

C. Competing

If a new build is not a great option and moving to a less expensive or less competitive area won't work, there are ways sellers who are also buyers can compete.

The first thing to understand is that sellers who will be looking to purchase their next home have an advantage. They have the equity from the home they own (often a few hundred thousand dollars) to use as a tool to help them win in a multiple offer situation. In today's market, winning offers are those that include a large amount of "appraisal gap coverage". This is the difference between how much a buyer has offered (sometimes 15%-30% above list price this year) and how much the appraisal will likely come in for (likely somewhat more conservative than the amount offered.)

For many of the most attractive homes this year, sellers expect that buyers will be able to have additional cash, on top of their down payment, to make up the difference between any amount they offer over the property's list price. For the most part, offers with these terms are what are winning in this market.

In short, buyers who have enough cash for a down payment and 15%-30% of the value of the house they are buying in additional cash, are most competitive at the moment. As home sellers have built up equity in their current homes, they will be able to access these funds more easily. They are essentially transferring equity from one home to another.

An example of this is below:

A home is listed for 700K

Buyer wants to offer 770K.

To win, it is likely the buyer will need to have an additional 70k in cash on top of their down payment and closing costs in case the appraisal comes in somewhere between $700k and $770k.

Additionally, there are a number of ways that sellers can access the equity in their homes when making their next purchase. Lenders have bridge loans that allow sellers to buy a new home before they sell. Also, sellers can tap into their equity by taking out a Home Equity Line of Credit (HELOC) or doing a cash-out refinance prior to selling.

No doubt about it, there are a lot of moving parts when selling and buying but it is possible, even in this market. We are here to answer your questions and guide you if the time is right.

Don't hesitate to reach out.

Until next time!

Allison Benham and Ken Crifasi with K&A Properties

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