Trading Up and Downsizing: What to Know if You Are Both Buying and Selling in a Buyer’s Market

Many of our sellers are also our buyers, because they’re moving from one place in our area to another. If that’s the case, you probably have questions about whether this is the right time to “trade up” or “downsize,” and about when you start looking for a new home during your selling process.

People always ask real estate agents how the market is doing. The answer is simple – it depends. That’s because your view of whether the market is “good”or “bad” depends on your individual circumstances. In a seller’s market where inventory is low, demand is high, and prices are going up, the market is “good” if you are a seller. In a buyer’s market, where inventory is high, demand is low, and prices are going down, the market is “good” if you are a buyer.

That all makes sense if you are going to be only selling or only buying in a particular market. If you are only selling in a seller’s market (maybe because you’re going to be renting, or you are combining households), then you do well in a seller’s market because you get to take advantage of the high prices without worrying about having to buy something new. And if you only buying in a buyer’s market, such as a first-time home buyer with nothing to sell, you get a home for a relative bargain.

But what if you are both selling and buying in the same market? After all, you have to live somewhere. If you’re in that position, then the market is really just “neutral.” In a seller ‘s market, you do well on your sale, but you’re going to pay a lot for your purchase. In a buyer’s market, you don’t do as well on your sale, but you’ll get a relative bargain on the home you buy. So it doesn’t really matter whether you’re in a seller’s or buyer’s market when you’re both buying and selling a home. You either sell and buy at a higher price, or at a lower price.

Now, what does that all mean when we’re in the environment that we see this year, when we’re clearly in a buyer’s market?

First, if you are “trading up,” you’re much better off in the buyer’s market today than you would have been in the seller’s market a few years ago.

The reason is simple: if you are going to be buying a new home in a higher price range, you are better off when prices are low overall. Let’s say that you were thinking of trading up in the seller’s market of a few years ago, when your home was worth $400,000 and the home you wanted to buy was worth $600,000. Since then, of course, prices have declined about 25% throughout the region, so your home is now worth $300,000 and the home you’re buying is now worth $450,000. So although prices have declined 25% across the board, the spread between the house you’re selling and the one you’re buying has declined from $200,000 to $150,000, saving you $50,000 to move from one house to another.

Moreover, real estate professionals know that in a buyer’s market, the largest declines actually happen in the higher-end markets, particularly in the market over the past five years. So people trading up might be trading from an environment with a 25% decline into an environment with a 30-35% decline.

Second, if you are downsizing, you are likely to still come out ahead in a buyer’s market if you are downsizing into a new area of the country.

Homeowners who are downsizing will not get the advantage that move-up buyers get in the spread between their sale and their purchase, but many of them will get an advantage because they are moving to areas of the country that have seen far more than a 25-30% decline in prices. Many of our downsizing buyers are selling their expansive homes in our region in order to keep a small home in the area and purchase a retirement home in a warmer climate.

If that’s the case, then those downsizing buyers are coming out way ahead by downsizing in this buyer’s market than if they had downsized a few years ago. Prices in retirement areas are down by as much as 50% from their heights in the seller’s market, whereas our local prices are down by half that. So if you are selling north and buying south, you are much better off now than in the seller’s market. Indeed, you might have better bargains now than at any time in the past 15 years.

Third, if you are going to be both selling and buying, make sure to get your home on the market first.

It can take a fairly long time in this market to complete a sale, so you definitely want to get your home listed and reasonably priced to the market before you start shopping for a new home. You don’t want to be in a situation where you find the perfect home, but then lose it because you haven’t sold your current home yet. While you can always ask the seller of your new home to give you a contingency that will allow you to get out of the contract if your home doesn’t sell, most sellers won’t consider that (the same way you probably wouldn’t consider it).

That said, you should certainly start watching the market. We would not recommend you actually go out and look at properties to buy, because that can be a frustrating experience if you’re not yet sold. But you should definitely start keeping track of the market you’re looking to move into, so that you can watch how long properties stay on the market, keep an eye on some likely candidates, and see what’s selling and for how much.

Finally, if you are moving out of the area, you should let us help you.

We have a network of specialists through our affiliation with Cartus, the largest relocation company in the world, and can help ensure you get a great agent to help you on your purchase. You’re much better off working with Cartus than choosing an agent on your own, because Cartus relocation specialists are bound by strict standards of professionalism and service excellence. Just let your agent know that you’re moving out of the area and need a professional real estate agent to help you find a new home.

Posted on May 5, 2017 at 11:35 am
Vincent Abbatecola | Category: Rand Seller Orientation Guide

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