A true story about why selling should always come before buying.
Ten years ago, Lindsay Maurer and her husband decided to look for a larger home for their growing family. When they found a house in their price range in a great neighborhood with good schools, they moved quickly to lock it down. They were thrilled when their offer was accepted immediately†.
“But now we had a house on the market that wasn’t sold and a house already in contract,” says Maurer, who soon found out why buying before selling is, at best, an open-ended financial gamble. Like many homeowners, the Maurers were optimistic about the value of their current home and the ease and speed of selling. But when bids at their asking price failed to materialize, they had no choice but to take the first offer. “It wasn’t great, but recognizing that by July we’d be paying two mortgages, we accepted,” says Maurer.
That’s not an uncommon fate for homeowners who buy before selling, says Chicago realtor Amie Klujian, who explains that when prospective buyers observe that an owner has already moved out they view it “as an opportunity to really lowball you‡.” You can try to avoid overextending yourself, she adds, by putting a contingency clause in your offer stating that the purchase won’t close until your existing home sells. However, that makes you a less appealing buyer, and you may have to bid higher to compensate.
Beware of Ghost Buyers
When a buyer comes in, there’s no guarantee the deal will go through. Even with a preapproval, not every buyer who places an offer is able to meet all qualifying requirements of a loan, or the approval process can take longer than expected. The buyers for the Maurers' home needed to file their tax returns in order to get their mortgage approval—which took six months. In the meantime, the couple would be carrying two mortgages, one for $2,400 and the other for $3,400.
That’s just one of many surprises that can derail a closing, says Robert Haley, a branch manager and assistant vice president at The Huntington National Bank§. “There could be issues with inspection, appraisal, down payment, and underwriting,” he says.
For the Maurers, the eight months the couple ultimately spent as owners of two properties were far from easy. “We were absolutely panicked about being able to cover everything,” says Maurer, adding that the worries seemed to multiply—among them whether the winter weather would cause damage or somebody would break into the house, which was now vacant.
Haley notes that even homeowners who are prepared to carry two mortgages on a temporary basis often fail to account for other carrying costs like property taxes, insurance, utilities, and maintenance. “If it’s during the summer, you have to cut the grass at both properties,” he says. “You really have to think about everything.”
A Financial and Emotional Toll
The longer the dual mortgage situation goes on, the bigger the toll—both financially and emotionally. “Talk about marital stress, monetary stress—it was just not a good time,” says Maurer, who reports that the situation ate up their savings and that the family has been living with virtually no financial cushion ever since. “We’ve never fully caught up, because as soon as you think you’re caught up, something else happens. It’s like living in a hamster wheel.”
It’s a lesson they took to heart. Two years ago, the family planned a relocation to Virginia when Maurer landed a new job there. This time, they held off on house hunting and put their home on the market first. Maurer began commuting long distance, spending the workweek in Virginia and joining her family on weekends, a solution they were sure would be temporary.
“But in two years, we got one offer, and it was $100,000 below asking,” Maurer recalls. Rather than go through another double-mortgage commitment, the family opted to pull the plug on the move. Fortunately, Maurer recently landed a great job back in New Jersey, and life is now back to normal. “After living back and forth, I’m happy to be anywhere with my family full time,” she says. “Fortune switched, so I’m grateful for that.”