Home ownership on the Monterey Peninsula
The Monterey Peninsula is a luxury real estate market. For example, the national median home value is around $250,000 for this year. Compare this with my market report for the cities of Pacific Grove and Monterey, both showing average sales prices of over $1 million this year. But don’t stop there; average price in Carmel is over $2 million… and average price in Pebble Beach is nearly $3 million!
Some of these homes are owned by investors, trusts or wealthy individuals who can afford to use them as second or even third homes, for vacation or investment purposes.
However, if you are like the majority of Monterey Peninsula homeowners, you man not be in a position to own more than one home at a time. When you are looking to trade-in your home — whether you are a growing family, looking to sell your starter house to move-up in size, or a retiring couple looking to sell the family home and downsize into something more manageable — the question arises: how best to accomplish your goals?
Buy the New Home First
You may have the means to buy another home outright. This affords you the benefit of being able to take your time shopping, and then move into this new home before making a decision on what to do with the first home. Ways to do this include:
Use Cash Savings — if you have the funds available
Qualify for financing — such as with a HELOC or bridge loan
Buy an Investment Property — and use the established rental income to offset your ability to make payments
Rent out your own home — and use the established rental income to offset your ability to make payments
Sell Your Existing Home First
If you have some flexibility in your life situation, it may be a good idea to sell your home first and then take your time deciding what to do next. In this situation, you can be patient in fielding offers for your home. You can put your profits in the bank, and let the dust settle before deciding what type of purchase to make next. This is especially helpful if you are relocating, as it will give you a chance to get to know the new area before committing to buying a home. However, it can mean having to move your possessions more than once, or finding a storage solution. Ways to do this include:
Rent for a year — while taking your time to study the market.
Find a month-to-month rental — to hold you over until you find your next house to buy
Put your possessions in storage — and go on a vacation or stay in a hotel. This is a possibility when you have identified your replacement property, and just need to bridge the gap between moving out of the old place and into the new. Several moving companies combine moving and storage. They pack your possessions in a shipping container and store them until you move in to the new place.
Rent back — this can be built into the contract for the sale of your house. Your buyer agrees to let you stay in the home after closing, for a set time (30, 60, 90 days, etc). The purchase closes, you receive the profits, and then stay in the home and pay the buyer rent until the agreed move out date. This can be a useful scenario but it will limit your buyers somewhat.
Selling as a Contingency of Buying
Another common way to facilitate moving-up or downsizing to your next home is to make a contingent offer. You can make an offer to buy a home, with the condition that you are successfully able to sell your own home first. If you end up unable to sell your own home, you can back out of the purchase. This means the seller of the home you are buying is going to have to take a chance on you and your ability to perform. In a hot seller’s market, these types of offers are not always as attractive. When homes are selling a few days after they hit the market, and are getting multiple offers, it can be a challenge for a contingent offer to compete with cash offers or more favorable terms.
However, this is not necessarily the case for our luxury market on the Monterey Peninsula. While our overall values are strong, the average days on market is around 70 days this year. This means that, on average, it takes 70 days for a seller to accept an offer on a home. In this market, if you write a strong contingent offer, you have a good chance of getting your offer accepted. In order to do that, though, you will want your listing looking great and positioned to sell.
Be in Escrow — Ideally, you will want to have your own property already in contract before making a contingent offer. This way you can show the seller, “Look, here is our sale contract, we already have our property in escrow and we will close on this date.” The further along you are into your own escrow, the better.
Be Active on the Market — If your house isn’t in escrow yet, the next best scenario is to be actively listed on the market. This way, we can say, “Look, here is our beautiful listing, look how it is positioned to sell, we will be in escrow in no time.” We can invite the agent and/or seller to come preview the property to see for themselves. We can also build a case by providing a detailed market report on why the home is priced well, and what we are doing to get it sold.
Be Coming Soon — If your own listing is not active yet, it is still possible to make a contingent offer. But if we want to convince the seller to accept our offer, we will need to build the best case possible. Again, as above, we will show what we are doing to get your listing ready, where it will be priced, and when it will go live on the market.
Make a strong contingent offer — If you end up competing with other offers, it helps to do what you can to make your offer as attractive as possible. You may need to offer a higher price than a cash buyer, for instance, because your offer is coming with more risk and a longer wait time to close. It can also help to sweeten some of the terms in the contract, like paying for costs and fees not typical for the buyer, or shortening other contingency periods, etc.
However, if the house has been sitting on the market, with no offers, you may hold leverage in the negotiations, even with a contingent offer. This is all a part of the negotiation process and is something that a skilled agent will offer guidance on. The end result is to accomplish your goals, while getting you the best result possible!
A Recent Case Study
I have helped buyers write contingent offers on other properties, and I have helped sellers sort through contingent offers on my listings. In fact, I recently closed a contingent transaction - a great example of how patience can pay off. My sellers were presented with two offers: a full-price contingent offer, and a lower cash offer. The contingent offer would need to have several conditions work out smoothly, and would likely take two months to close, while the cash offer was basically a sure thing and could close in just three weeks.
After weighing the pros and cons of these two options, my sellers decided they would give the contingent offer a chance. They were not in a rush to move, and if it did work out, they would end up with the price they wanted.
Well, patience is indeed a virtue! Though it took some time for everything to align, we successfully navigated the transaction to closing. The sellers got full price for their listing, and they can happily move on to their next chapter. This was a great example of how a contingent offer was a win-win for all parties involved.
Your Trusted Guide Through the Process
If you or someone you know is thinking about selling a home in order to buy another, it helps to have a trusted resource to call on. Whether your goal is to move up to a larger home, or to downsize into something more manageable, it is important to have the right professional there to guide you through the process.
This is what I love to do, and I do it full time. I’d be happy chat with you anytime about your goals, and explain how I can help! Feel free to text or call me at 831-869-6117.