Home Buyers: Top Five Rules of Trading Up Part 1
Yes, the real estate market is great if you’re a home buyer. Interest rates are low, prices are even lower and there is a lot of inventory. There are so many homes to look at you might have a harder time making a decision than if there were fewer. Somewhere here I have written about how studies claim that the more options there are the harder it is for people to choose. But all that aside, as a first-time homebuyer, real estate right now seems like an easy “no brainer” choice.
But what if you’re looking to trade up? What if you are like so many of the rest of us who has homeowners already and just don’t want to pass up on this opportunity to buy a bigger home? Perhaps the last one just doesn’t do it. Maybe your family has grown or the kitchen seems to be getting smaller every year as your social circle increases. What then? Is there still room for those of us?
The good news is yes. But trading up is harder now because if you’re hoping to use the value of your old home to buy a new one you might be surprised to learn that your old home isn’t worth what it used to be. While it is easy to say that you will just make up the difference on the other side of the transaction - which is to say that even if the value of your current home is depressed, so is the value of the new one - this is not always an equal transaction.
Here’s what you need to know to make a smart decision about trading up:
1. Plan before you move
It’s easy to dream about a bigger home. If you are like a lot of people, Open Houses are fun and not just because you get to pry into your neighbor’s home. Okay, just kidding. We know you don’t do that. (Do you?) No, if you’re like most people, window shopping homes can be a lot of fun. You get to see different ideas of how homes are arranged and how people live. You get interior decorating images stuck in your head. You wonder if you can make your home look like a picture in a magazine.
When you are seriously in the midst of home shopping though you have to put that starry-eyed version of a house away and focus on practical matters. This can be a tough transition for a lot of people. Planning involves not just making lists of things you hate about your current home that you want to be different in your new home, it involves marrying that list to reality, budgeting for what is already available and can be bought and also making plans for the future to bring in what cannot be yours immediately. If it doesn’t sound like fun, it’s not. Not really. Unless you love doing this sort of thing. Then, more power to you! Go forth and conquer!
2. Sell before you Buy
I did already mention this a little bit earlier but I think it’s worth devoting an entire section to it. If you live in a home you bought a while ago (and by a while I mean before the recent appreciative period in real estate prices) you might still be able to sell it and make a profit. But don’t base your decision of how much your home is worth on the appraisal you got two years ago. And don’t base it on its refinanced value a year ago either. The only way to know how much your current home is worth is to get an appointment with a local Realtor® and have him show you the recent comps. These might surprise you, but it’s the only way to know if you’re looking at this move realistically.
Once you get an idea of how much your current home is really worth, you can then go back to the drawing board and decide if a trade-up seems like a good idea. You might decide that the numbers don’t add up as well as you thought and the old home doesn’t seem so bad after all and you can wait until this current depressed real estate market recovers to make your move. Or then again you might decide that this move is definitely possible. If your decision is the latter ensure that you sell your current home (not just put it on the market) before you head out looking for another. While it might scare you to be without a home for a month or two while your old home is sold and there isn’t a new one, it is the safest way to trade up. And with so many homes there to look at, finding a new home to fit your life into might not be as hard as you think.
Tomorrow, we’ll get into Part 2 of the Five Rules of Trading Up. Come back! If you are one of the many that are moving into a bigger home, you don’t want to miss this!
