How to Avoid the Trade-In Trap When Buying Your New Home!

By
Real Estate Broker/Owner with Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate

Padlocking your moneyWith interest rates dropping to their lowest levels since 2004, the home equity loan re-finance bug is itching a lot of folks again. As we approach the Spring Market which traditionally swings into full gear around March, home buyers will be able to take advantage of low interest rates and a large inventory selection of homes to buy as well. 

If you currently own a home and intend to sell it, it's important to coordinate your transactions properly so you do not find yourself making two mortgage payments.  Failing to sell one home before purchasing is a tremendous source of financial hardship to many home owners. There are some steps which you can take to help you to avoid being trapped by your Trade-Up Home. 

1. Know Your Values?

Many home owners make the mistake of relying on old data to determine the equity that they have in their home.  In today's market with the shifting sands of changing value, an appraisal which is older than 60-90 days is probably NOT an accurate indicator of the current value for homes in your neighborhood.  The average home Sale in Grand Rapids, Michigan has decreased almost 26% since the end of last year from $121,000 to just under $100,000 today.

2.  Steer Clear of the Loan Guessing Game!

It is vitally important to get pre-approved for a new loan. Credit lending standards have tightened considerably within the last 3 months due to the sub-prime lending crisis. But with the New $8,000 Buyer's Credit AND the fact that interest rates are trending downwards below 5%, there's plenty of incentive to get a professional review of what you can afford.

Don't assume that because you qualified for a mortgage last year, the same terms and conditions still apply.  To avoid an unfortunate surprise, get an updated, valid pre-approval letter from your lender which includes: verification of your credit, mortgage or rent payment history and verification of your employment. 

If you own a home you intend to sell, verify the balance and pay-offs for your current loan.  This will give you an accurate indication of how much money you may be able to spend towards the purchase of your new home.

3.  Sell First!

If you own a home and don't want to be strapped down with supporting two mortgage payments...Sell Your Home First and then buy your new home.  With the incredible array of properties for sale, the idea that your dream home will vanish if you don't act now is probably not as big a problem as holding onto your old home for a year while making monthly payments will be.

This is NOT the time to get into the Bridge Loan Trap just because interest rates are great.  Although the spring market has definitely picked up, you don't want to create a bad deal for yourself while trying to get a good one!

4. Don't Leave Cash on the Table!

If you're buying another home, most home owners want to get as much as possible out of the home they are selling.  This is normal and has a certain logic to it.  However, taken to extremes, many home owners have inadvertently hurt themselves by holding on far too long to a declining asset.  If you're moving to a more expensive home, negotiate hard to get concessions on your new home purchase. 

A 10% concession on a $200,000 home will more than make up for a 5% loss on a $100,000 home. When you factor in the additional 3 ~5 months of mortgage payments which you may be making while you wait for a buyer rather than pricing your home to Sell...well, it can run up to be quite a loss. 

House5.  Spiff, Clean & Repair!

In a market with a lot of competition,  your home must look it's best if you intend to sell it at the best price the market can support.  Home buyers are looking for value and the first indicator of value is curb appeal and general appearance.  Here's a link to a Staging article which provides some tips about staging your home for sale.

6.  When You're Ready to Look...

When you're seriously ready to start looking, you might want to consider a Brand New Model rather than a Re-Sale.  You can get a lot for your money right now.  I've created a search for a variety of of areas in Grand Rapids and the surrounding communities in which BRAND NEW HOMES start at around $100,000!  NO KIDDING!

7.  Coordinate Your Exit Strategy...

There are few things more stressful than closing on your home and having nowhere to stay.  If you are buying a new home, sometimes there can be delays in obtaining permits or in completing the building process. 

Even a home which is not new can present unforeseen challenges with move out dates. It is best to give yourself a little overlap time if you need to coordinate a move to a new home or currently occupied home.  A good real estate agent will factor this into your contract negotiations.

Don't allow the purchase of your Brand New Trade Up Model to become a nightmare. At Audu Real Estate, we strive to coordinate the home purchasing and home closing process for a smooth stream-lined transaction.  If you would like to learn more about our services, please visit our website.

*this blog post was originally published in the Spring of 2008 and has been updated to reflect current market realities.  Questions about the myriad of possibilities which may be open to you can be directed to the author @ info@auduhomes.com

Copyright 2008 Audu Real Estate All Rights Reserved

 

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Show All Comments
Rainmaker
1,275,239
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

You have the BEST thought provoking blogs.  The "trade-in" trap.  LOVE THAT summation!  New construction . . . did you read this blog: http://activerain.com/blogsview/1005630/Is-Chinese-Drywall-the-next-asbestos-or-lead-based-paint

The positive thing about re-sale is this:  It's still standing!!  Stands through the tests of . . . TIME!  Buyers should consider older properties very seriously.  Sellers wanting to have new can really upsell a resell.  Most of the older homes in our area have the larger lots . . .

By the way the graphic you used is great too!

Portland, Oregon has a wonderful, perserved area called Laurel Hurst.  I should "Localize" that . . . OH, brother.  You're making me think . . .

Mar 27, 2009 03:36 PM #21
Anonymous
Anonymous
Anonymous

All of your post is very true. It can really be a trap. Owning two homes is not worth the chance of not selling one of them, especially in this market!

Mar 27, 2009 04:10 PM #22
Ambassador
2,373,141
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

There are contingencies that can cause the failure of transactions.  Agents need to have an open relationship with buyers to make sure they understand the pitfalls of today's market from down payments, rented properties, appraisal, etc. 

Things are not what they used to be and we need to be on our toes. 

Great post Lola.  All agents should read it. 

Mar 27, 2009 04:15 PM #23
Rainmaker
374,933
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Edith, thanks for your comment.  The spring market is blossoming in Grand Rapids, MI.  #4 is the point which some sellers really struggle with.  I've watched people loose all kinds of money because they were unwilling to give up a little gain on their old home and then ended up loosing more money than was necessary because the market trended down so rapidly...

Thanks for your comment Lisa.  I do not allow reblogs on my articles.

Dee Dee...you're right that banking standards have changed dramatically.  There are no guarantees.

Steve, making #3 mandatory was something that was not to deemed to be as crucial a few years back.  Today, you're gambling with a lot to take on 2 payments...and banks are much more conservative in assessing a borrowers ability to qualify for this type of financial obligation.

Mar 27, 2009 05:53 PM #24
Rainmaker
374,933
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Bill...a very dangerous misconception in some cases.

Svetlana...#7 is where a great agent shines.  This is the nuts and bolts of negotiation and making sure that a clients' interests are well served. 

Diane...the book is on my 'to do list'  :) Always appreciate hearing from you.

Bettina...increasingly more people can't carry a wrap-around mortgage.  And just because you can...doesn't mean you should.

Rich...Thank You!  Appreciate your comment. :)

 

 

Mar 27, 2009 05:59 PM #25
Rainmaker
226,706
Craig Schiller
Baird & Warner - St. Charles, IL

Lola, that is a power packed post. (PPP for short)

Great read.

Me

Mar 27, 2009 06:00 PM #26
Rainmaker
374,933
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Carla...I'm a lover of older homes.  My first home was 109 years old and I loved that home so much that I actually looked into the cost of moving it!  It was cost prohibitive though.  I hadn't read that blog post, but I'll have to check it out. 

In our area...the price of new construction has gone down.  We have a number of excellent builders still standing although many have succumbed to the unfortunate realities of the market.  With older or newer homes, it's important to thoroughly inspect the purchase.  Thanks for commenting here today.  Appreciate it.

Mar 27, 2009 06:03 PM #27
Rainmaker
217,365
Patricia Beck
RE/MAX Properties, Inc., GRI, CDPE - Colorado Springs, CO
Colorado Springs Realty

Very useful information for buyers and sellers Lola.  You make great points especially #4, sellers often get so focused on a price they don't realize they are actually losing money in the long run.

Mar 27, 2009 06:37 PM #28
Rainmaker
558,669
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Wow Lola -- Exceptional and thorough advice here, especially the part about not using a bridge loan, that is so risky today.  Beyond well written and comprehensive post. :-)

Mar 27, 2009 06:57 PM #29
Ambassador
895,607
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Realtor - Ann Arbor Real Estate

"holding on to a declining asset" WOW am I going to use this.

What a phrase.....

Good information on getting closing costs, didn't realize it could help in 5% of loss on current home.

YOU are ONE smart, wise woman, Lola.

Mar 27, 2009 08:14 PM #30
Anonymous
Anonymous
La Toya Williams

Celebrity look alike- completely off subject.  You favor Michelle Obama to me.  Has anyone told you that before?

Mar 27, 2009 08:18 PM #31
Rainmaker
374,933
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Amen to that Norma!

Lenn you make a very important point...ALL potential ramifications should be covered with buyers and sellers to the greatest extent possible.  That's what agency & fiduciary duty are all about.  Reminds me of how differently we do things from lets say the medical profession.  

Doctors pretty much make you sign on the dotted line for every conceivable outcome even for routine procedures.  Which underscores what every experienced agent has long since discovered...routine is rarely the norm.  There's always something to make the transaction interesting. :)

Hey there YOU! :)  Thanks.  Enjoy following your updates on Twitter too.

Mar 27, 2009 08:21 PM #32
Rainmaker
374,933
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Patricia...sitting down and doing that basic arithmetic with a seller is powerful...very effective.

Chris, Thanks.  In my opinion, Bridge loans have always been a riskier product. A lot of things have to go just right to make them work well.  During a period of economic instability, they would not be a recommended financing alternative to most sellers although there are always exceptions...

Missy...isn't that really what a home becomes in a buyer's market which has a severe downward trajectory. Every month you hold on to that home...the value is declining.  No problem if you don't have to move, but if you do...well, this should be factored in.

La Toya...Maybe I can make that another career. :)  

 

 

Mar 27, 2009 08:28 PM #33
Rainer
178,939
Mark MacKenzie
Phoenix, AZ

"Knowing your exit strategy."

I think the reason a lot of people get into trouble with real estate is that they have not thought far enough ahead.

 

Mar 27, 2009 10:09 PM #34
Rainmaker
400,818
Regina P. Brown
California Coast & Country Homes, Inc. - San Luis Obispo, CA
e-Pro Realtor

Lola, my advice to sellers AND buyers is to try to overlap their move.  In other words, sellers should have a new place ready and have started moving out a couple weeks before COE.  This eliminates a lot of stress.

Join my new AR group and post your blog at http://activerain.com/groups/virtualoffice

Regina P. Brown

Mar 27, 2009 10:37 PM #35
Ambassador
1,558,156
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

You make many good points that sellers need to consider and often need pointed out to them.

Mar 27, 2009 11:44 PM #36
Rainmaker
722,573
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota Real Estate Expert

This is a really great post.  People for sure need to be aware of the market drop in their area.  26% is a high percent to not know.

Mar 28, 2009 12:19 AM #37
Rainmaker
65,277
Heather Goodwin
Licensed by the Louisiana Real Estate Commission - Shreveport, LA
GoodWin Team Realty

Good advice, Lola.  I may be using it myself as we contemplate putting our home on the market.

Mar 28, 2009 07:57 PM #38
Rainer
13,038
Robin Turner
Happy House Real Estate - Cocoa Beach, FL
Robin Turner

We're seeing builders offering new construction for less than exisiting homes, the same models, on the same streets.

Now is the time to buy...

Mar 29, 2009 09:18 AM #39
Anonymous
Anonymous
Danell Merren

Well said, Lola! It is obvious that clients are in good hands with you! I hope at some point we have a mutual buyer one way or the other! Take care!

Apr 15, 2009 08:01 PM #40
Show All Comments
Rainmaker
374,933

Lola Audu

Audu Real Estate~Grand Rapids, MI ~Welcome Home!
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