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January 7, 2008
Buying and Selling at the Same Time
My husband and I purchased our first apartment last year. We've quickly discovered that the place is much smaller than we anticipated and would like to look for something larger next year. I'm curious as to how people typically coordinate selling one's existing place and buying another in this market? Are sellers open to offers conditional on the buyer selling his existing home or is it necessary to sell first, find temporary housing and then look for a new home?
Comments
I don't think anyone in the US is going to consider offers based on you selling your own home first. I know it's a common thing in the UK but the havoc it wreaks on a whole bunch of other people in "the chain" is just yet another example of the myriad things about the UK that remind me of why I left.
In this market, with down-trending prices, I think the best option is to sell first and rent while you're looking. I'm assuming your not mentioning children means you don't have any; the upheaval of moving kids and possibly schools twice within a year might put a different light on it. If you do it the other way round, you have to be financially capable and prepared (both in your own eyes and those of the lender on the new place) to carry the mortgage and maintenance on both properties for as long as it takes you to sell. You might have the option of renting out your current place once you move out but you need to ascertain, if it's a co-op, whether the board allows it and whether the rental income will meet your monthly nut on the place.
Posted by: johnife at January 7, 2008 3:25 PM
This is a good topic.
Previously when things sold immediately, people would take out an equity loan to pay the down payment and buy a place before selling and put your place on the market the moment you have an accepted offer. Getting a longer than usual escrow period if you buy first, helps.
In a nervous slower market though, I'd personally not buy first then sell. You should pack and put everything in storage except the bare minimum of what you need day to day. Then sell your current apt first, and while it's on the market start looking full time for a place to buy. Just try and juggle and time the closing dates and everything as closely as possible.
Posted by: guest at January 7, 2008 3:31 PM
Agree with John. Sell first.
Even a normal house closing takes 90 days AFTER you have all parties agreed, co-ops can take much longer. Once you get that sorted you may not even have much of a housing gap at all.
There must be people out there who would take a contingent offer but its a very disadvantageous position for a seller so you won't find many willing to do this.
Posted by: Mrs. Limestone at January 7, 2008 3:32 PM
Since you only bought last year you will pay capital gains on all of your profit. Just something you might want to think about.
Having a contract on your current place would put in a stronger position.
I am in the same boat and have found the who coordination of selling and buying impossible and have thrown in the towel. The rest of the country seems to have no problem with sales contingencies but NY is different. I know people who sold first and years later are still renting and I know others who sign contracts to purchase, cross their fingers, and hope to sell. It all depends on how strong your stomachs are. Good luck.
As for kids, if you have them, they can remain in any current public school until the terminal grade. In other words, if they are in a K-5 school they can stay until fifth grade. If they are in private it shouldn't be an issue.
Posted by: guest at January 7, 2008 3:41 PM
If you have spent money on renovations, new appliances, etc. keep all those receipts because you can write those off against the capital gains taxes.
Another exception btw, which doesn't apply here, is if someone is being relocated for work or school, to another city and has to sell less than two years after buying a place.
Posted by: guest at January 7, 2008 3:48 PM
You don't pay cap gains tax on the first $250,000 ($500,000) for married) of the gain if there is any on a small place that you've owned for just one year. Cap gains only apply after a full year remember.
Posted by: daveinbedstuy at January 7, 2008 4:31 PM
No, capital gains tax applies to the ENTIRE profit at ANY time in the period before you mark two years of ownership.
If you've owned only 6 months you pay, if you've owned only 1 year you pay, at 1.5 years you pay. Only after 2 years passes do you get to write off the $250,000 for an individual and $500,00 for a couple.
Posted by: guest at January 7, 2008 4:51 PM
Depends on your risk tolerance. If it is a coop you are selling, is there any chance your board will turn down a buyer you think will pass with flying colors? If so, don't risk it unless you can cover both places for months.
One thing that sometimes happens is that people agree to close and then let you rent the place back from them for awhile. Others get their buyer in contract and get coop board approval, and then agree to schedule the closing a few months out in the future. The advantage is that you only have to move once, but there are some risks inherent in process (buyer could lose job and be unable/unwilling to close; boards can change their minds; any circumstances can change over time). But they may be risks you are willing to gamble on. Works best if both buyer and seller are very flexible.
Posted by: guest at January 7, 2008 5:14 PM
Timing a near simultaneous buy/sell is virtually impossible with all the variables like co-op boards, rate-lock expirations, flighty buyers/sellers, etc. But it can be done if all of the stars align. Having tried and failed at this twice in the last two moves, here's some lessons learned:
1. DO NOT rent back, even for a few days, an apartment you just sold. It is a vehicle for a douchy buyer to extort money from you via invented damage claims against the security deposit you leave for whatever time period you rented back.
2. To protect yourself from being really screwed, sell your apartment before buying another. Its cheaper to find a short term rental than it is to carry 2 apartments, which can be really painful financially if you're not careful.
3. Start looking at properties to buy now, so that you are in the thick of your search when you eventually find a buyer for yours. Don't make any actual offers until you have a contract deposit for your place, and if you're selling a coop, don't make any offers on new places until your buyer is board approved.
4. Once your sell-side is lined up, use your knowledge of the marketplace (gained while you were window shopping) to be very aggressive on the buy side. After a few weeks/months of window shopping while you're waiting out your sell-side, that will not be a problem -- especially because you will undoubtedly be "on the clock" at this point under your contract. You will be surprised at how much of an advantage that gives you over the typical indecisive buyer, especially when pursuing properties that have been sitting for a while.
5. Then try to stretch out the closing date on your sale so that it coincides as closely as possible with the buy-side closing. This is the most difficult part, but can be done if you set a closing date way off in the distance in your original sales contract.
Good luck.
Posted by: Emigre at January 7, 2008 5:50 PM
Emigre's post is right on. We used the exact same tactics on our last sell/buy, and we were able to coordinate it almsot perfectly. It helped that we had an out-of-state buyer and sellers who were moving out of state themselves. So we had some flexibility on our closing date. Even so, we had to camp out with friends for four days until we closed on our new place.
A side note: in most of the rest of the country, you can have your offer accepted contingent upon the sale of your current home. It doesn't work like that in New York. You'll almost certainly need a signed contract, and even then many co-op boards, if you're going that route, are going to give the buyer of your place the same scrutiny they're going to give you.
Posted by: guest at January 7, 2008 6:23 PM
Very carefully. But it can be done. We did it. It was stressful but it saved us money in the long run.
Put your place on the market first and find yourselves some firm buyers (make sure you yourself review their financials so that you are confident they will get their loan etc --don't trust brokers). Put a time frame on when your buyers must get a loan. Once the contingency is lifted, the contract fully executed and that money is safely in escrow-- You can start bidding on property. Make sure you put a contingency in your purchase contract (lawyer's will resist but insist)--sellers will go for it if the property has sat on the market for a little while and you are totally qualified, serious and have your package together. We actually provided redacted portions of our contract to the buyer. All this said--be prepared for it all to go wrong and walk away from the purchase and to rent short term.
Posted by: HomeSweetstuy at January 7, 2008 9:14 PM
Wow, this is educational. Emigre's experience with a buyer inventing damage is not one I would have thought of - I'd have thought they'd be happy to be buying a place they wanted. Guess I'm too trusting about human nature.
HomeSweetstuy's advice is good as well, but don't expect all sellers to agree to the sale of your place contingency in your contract - I wouldn't have when I sold, especially since the market is not really bad at all for selling desirable apartments - it depends entirely on the type of property you are buying, and what you are selling.
Having had a totally well-qualified buyer (financially and otherwise) turned down by my co-op board for imaginary lifestyle concerns - before they even talked to the buyer to find out if their concerns were valid - I would never (as a seller to you) trust that your coop sale (if it is a coop you are selling) WILL go through. (I knew my board could be nuts, so I planned on that, and planned to rent in between. Easier for me, as I like to plan ahead and not have my plans messed up last minute by nasty surprises.) The problem with coops is that they can and do discriminate, which is their purpose, actually, and it is perfectly legal for them to do so as long as it doesn't violate any anti-discrimination law.
Posted by: guest at January 8, 2008 11:29 AM
guest at 4:51 isn't entirely correct. If you move and sell your house for certain reasons, even if you haven't lived in the house for two years, you can still get an exclusion (albeit reduced) from capital gains taxes. As always, the lesson is not to trust tax advice from a blog forum.
http://www.irs.gov/publications/p523/ar02.html#d0e3182
Posted by: guest at January 8, 2008 2:13 PM
This occurs in the midwest all the time; not sure about NY.
Posted by: guest at January 8, 2008 4:11 PM
Thanks for all the insightful input. Due to the size and location of our co-op apartment, I don't anticipate seeing much in terms of capital gains. And the way the market looks now, we could easily pass the two-year mark of ownership before selling. I'm glad I inquired early so we know what to anticipate. Thanks again.
Posted by: adenyce at January 9, 2008 11:40 AM
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