Most of the buyer’s right now in the distressed markets across the country are either first time buyers or investors. Both of these categories recognize that this is a perfect opportunity in which to buy.
But what about move-up buyer’s? Those who already own a home but are ready to purchase a larger home or a different type of home. Many of these would-be buyers are waiting until the prospects of selling their homes are better. Let me explain why this may not be the best strategy.
According to the National Association of Realtors the average move-up buyer purchases a home that is 50% more expensive than the house they are selling. For our example let’s assume that the Smith’s currently own a home that they think should sell for $400,000. They came up with this price because their neighbor across the street sold their house last year for $390,000 and their house is “much nicer than that house”. They have their eyes on a house in the same school district that has been listed for four months at $600,000. After our initial consultation I inform them that their house would sell within a reasonable time for $380,000. They are obviously disappointed and initially feel that they should delay the move until their house will sell for what they think it is worth. Before I leave, I take them through the following two scenarios.
Sell and Buy Now (slow market)
Sell House $380,000
Buy New House $570,000
Amount Down $130,000
Payment at 5.25% $2,429
If they decide to sell now they will need to price their home competitively in order to get it sold in a reasonable amount of time. The good news is that the house they want to buy is in a similar situation. Let’s assume each seller needs to take 5% less than they think it is worth to get the deal done. The Smith’s end up with a great house that they were able to buy for $570,000 with a total monthly payment of $2,429 excluding taxes and insurance.
Sell and Buy Next Year (strong market)
Sell House $400,000
Buy New House $600,000
Amount Down $150,000
Payment at 6.25% $2,770
If they decide to wait until everyone else is buying and selling they trade certainty and price for overall financial soundness. As the tide moves it takes all boats with it. As they gain $20,000 on their home they end up paying $30,000 more on their new house. More importantly they pay 14% more each month in interest. They also get to enjoy their new home with family and friends for an extra year.I think you would agree that the Smith’s would do well to take advantage of the opportunity that is presenting itself.