Be careful: Trading up can bring you down

SMART MOVES

April 18, 1993|By ELLEN JAMES MARTIN

She was a single mom living in a cramped Arnold town house with a 14-year-old son who longed for a big yard where he could throw a baseball. Excitedly, she put a contract on just the right home -- a Victorian in Annapolis with Williamsburg blue shutters.

But the single mom learned a hard lesson about trading up. By trying to buy the new house before she sold the old one, she eventually forfeited her chance at the right property when another buyer came along for the Victorian and her house was still unsold.

"She was shocked and disappointed," recalls Susan Ford, the agent who had worked with the Anne Arundel County woman.

Doing things out of sequence was the mistake made by the single mother when she tried to become a move-up buyer. In no position to carry two mortgages at once, she had made her contract on the Victorian contingent on the sale of her town house.

But the contingency carried a "kick out" clause that allowed another buyer to step in if she couldn't come up with the cash for the purchase within 72 hours. And she couldn't raise the cash until she sold her town house.

To be sure, not every homeowner trying to trade up suffers such a fate. But even buyers who are able to pull off the-buy-before- you-sell-scenario pay a price in terms of negotiating capacity, says Ms. Ford, who sells homes through the Annapolis/Arnold office of Prudential Preferred Properties.

That's because a buyer who has committed to a new purchase but is still encumbered with an unsold home can come under heavy pressure to liquidate the old property more quickly than he might otherwise have to do, perhaps at a discount. And, as a buyer, the unencumbered homeowner has more bargaining power on his next deal; he can present a prime "non-contingent" contract that will please the seller of the new home.

*

Real estate experts say that trying to buy before you sell is one of the five biggest mistakes made by trade-up buyers. Here are )) the others:

* Mistake No. 2: Underestimating how long it will take to sell your current home. When real estate people talk about "inventory," they're referring to the supply of properties on the for-sale market at any given time. These days, supply still exceeds demand in most neighborhoods. And that can mean relatively long selling times.

"People forget how long it takes to sell a house," says Ms. Ford.

Because of variations in market from one community to another, rules of thumb are tough to apply. But Michael C. Murphy, author of the book "How to Sell Your Home in Good or Bad Times," offers some typical projections.

He estimates that if you're selling a low-end "starter" type home, figure it will take 2 1/2 months. Count on 3 1/2 months to sell a mid-range home. And expect to spend five months or longer unloading an upper-end "executive" home.

* Mistake No. 3: Spending too much time shopping and too little time selling the old house

Most trade-up buyers move within eight or nine miles of their old home, notes David Liniger, founder and chairman of the RE/MAX International real estate chain.

"They already know the school systems, the freeways, the drive-time problems and the situation with crime. They don't need to shop all four points of the compass," Mr. Liniger says.

Granted, it's more fun to shop for your next home rather than slog through the home-selling process. But generally speaking, when you're trading homes, you're better off concentrating first on the hard work of selling and then on the buying process.

* Mistake No. 4: Looking for homes above your price range.

Eventually, the time will come to shop seriously for your trade-up property. You can save yourself a lot of misery if you begin your shopping with a concrete estimate of how large a mortgage you can afford to carry. The best way to get this is to become pre-qualified through a phone call or visit to a mortgage lender. Your real estate agent will suggest a name.

Going out to look at a 3,600-square-foot home with an enormous master bedroom and attached sitting room is a recipe for disappointment if your pocketbook can support only a 2,000-square-foot property, say experts such as Mr. Murphy.

"In many respects, financing is at the heart of any real estate transaction. Buyers should know what they can afford when they go out shopping," he says.

RTC * Mistake No. 5: Using "fictitious pricing" on the property you sell.

"People goof up on the pricing," says Mr. Murphy.

Nine times out of 10 the wrong price is too high a price. All too often, home sellers approach the pricing situation from the point of view of what they need from the sale to meet their next housing objective, rather than what the market is willing to pay.

And an overpriced home will generally languish on the market, wasting the seller's time and effort, says Ms. Ford, the Prudential agent.

(Ellen James Martin is a columnist for The Baltimore Sun.)

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