How to Buy Before You Sell

Many real estate clients are drawn to the idea of knowing where they’re going to move before they even put their home on the market. It takes away the anxiety of facing the unexpected. However, most home sellers need access to the equity of their prior home to qualify for their next home. If you fall into this category, buying before selling can be accomplished in several ways:

• Borrow money from a family member
• Sell to an investor for cash
• Get a bridge loan from a financial institution
• Use HomeLight’s Buy Before You Sell product

Borrowing Money

Let’s be honest…if you have a family member that will loan you several hundreds of thousands of dollars to bridge the gap between buying first and then selling your home, then DO IT! It’s a no-brainer. While this scenario can certainly be an option for the lucky few, it is also extremely uncommon.

Sell to an Investor

There are plenty of real estate investors in our market and it’s not hard to find them. In a rapidly appreciating market it is easy for an investor to pay close to the market price for a home, since their costs of holding on to the property is negligible against the profit margin they will realize when the time comes to resell it. In a slow or declining market, the opposite is true. This means the seller would be lucky to get wholesale pricing on their home and would most certainly lose out on the upside of selling it on the open market via the MLS (multiple listing service).

Bridge Loan

A bridge loan is the traditional method of allowing sellers to buy their next home before selling their current one by borrowing against the equity in their home. Banks and credit unions are the traditional sources of bridge loans. There can be a up to a four-week approval process to qualify for a bridge loan. Once approved, a homeowner can make a noncontingent offer on a replacement home. (As opposed to a contingent offer, which states that the buyer must sell their current home in order to purchase their new home, which inherently adds risk in the transaction.) A bridge loan is typically a short-term loan with closing costs of 1% to 3%, higher interest rates, and in some cases, prepayment penalties.

HomeLight’s Buy Before You Sell Program

A Steller Group partner of nearly four years, one of HomeLight’s signature products is called Buy Before You Sell (BBYS). This product functions like a bridge loan by tapping into your current home’s equity and using that as a down payment for your new home. However, there are some very important differences between BBYS and a traditional bridge loan.

1. BBYS comes without the high interest loan. Rather, you get approved for a loan using competitive mortgage rates through HomeLight Home Loans.
2. This program has a shorter launch period than a bridge loan—usually less than one week—so you can make that noncontingent offer on that perfect home right away.
3. You can pay off the HomeLight loan at any time without a penalty.
4. You get to work with a local, reputable real estate brokerage like The Steller Group throughout the entire transaction.
5. HomeLight gives a guaranteed offer on the home you are selling, which basically acts as a backup offer in the rare case it does not sell within 90 days.
6. Lastly, and the most important part, you get the full purchase price of your home when it does sell! HomeLight’s fees are marginal at 1.7% of the closing price of your home. That’s it. All other fees are typical fees associated with selling real estate such as agent commission, cost of repairs if needed, and closing costs.

The Steller Group finds that the BBYS program removes a layer of stress from our clients who need to move: the risk of a contingent offer not being accepted over a competing, noncontingent offer.

Because there are only a small number of Colorado real estate brokerages who are certified to offer this program, you can be rest assured that you will be represented by an experienced, full-time brokerage like The Steller Group to guide you through the entire process, start to finish.

The Steller Group is a real estate brokerage that offers concierge services like complimentary home staging and design consults, the coordination of any repairs or pre-listing renovations needed, and connections to any other service you might need to successfully move from one property to another. Contact us at 720.593.9355 or [email protected] to find out more about the buying and selling process and whether HomeLight may be a good fit for you.

– Seth Jones, Broker Associate and SRES®