There are many reasons to sell your current apartment. Perhaps you only planned on staying a certain period of time, and you are ready for a larger place. Your family situation may have changed, and your unit no longer can comfortably accommodate your needs. Whatever your reason, trading up is not as simple as merely buying. There is an added layer of complexity for second time home buyers. There are two transactions, buying and selling, that you must accomplish.
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Given this, we provide five tips for move-up buyers that should help the process.
It is tempting to buy your next place prior to selling. After all, it is fun to cement your next move. However, resisting this temptation is a prudent move.
There are several reasons you should do so. First, in New York City, sellers will not consider your offer if you have a selling contingency. This means closing is based on selling your current property, which naturally turns off the other party. This weakens your offer since you are competing with other parties that are not placing this condition.
Additionally, as a seller, it makes your negotiating position stronger. When a buyer knows you are facing a closing date to purchase your new home, he or she could make you a lowball offer. Third, it lowers your risk. Since you are not committed to a home purchase, you are not at risk for carrying two mortgages. Fourth, the real estate market could change quickly, meaning you have bought at a higher price than the current market and are selling at a price that is lower than you expected.
Calculate your equity
You need to calculate how much equity you have in your home. This is simply the market value less your mortgage balance. This helps determine the budget for your new home. New York’s rising home values have created equity for many people, even following last decade’s severe downturn. Your down payment has also built-in equity.
In a simplistic example, if you purchased your condo for $600,000, and made a 20% down payment, your mortgage started at $480,000. Let’s say your property is now worth $650,000 and, due to your monthly payments, your mortgage balance is $470,000. Your equity is $180,000 ($650,000 minus $470,000). This is a good starting place for your budget.
Look at closing costs
We have not factored in closing costs, however. It is important to remember that you have to pay closing costs on the purchase and sale. You have gone through a purchase, so you are likely aware of the rough costs involved. For your sale, this is primarily real estate commissions.
You need to subtract the closing costs of your selling price. Simultaneously, add these costs to your purchase price. That way, you can accurately budget how much to spend on your new property.
What are your needs?
When you purchased your first place, it was likely based on practical functions. Chief among these was affordability given New York City’s high housing prices. However, now that you are ready to move to your next apartment, you need to carefully consider your lifestyle. Perhaps your family situation has changed, and you need to consider square footage and the schools.
We suggest making a list of your needs and wants. It is important to distinguish between the two.
How long do you plan on staying?
If you plan on staying for a long time, your next apartment should meet your current and future needs. In this case, you may not mind spending a little more since you are taking a long-term view. But, remember this requires examining what your situation will look like several years into the future.
You can always decide to stay in your current place. Given the city’s lack of inventory for most of the market, you may decide to renovate is the better option. Perhaps you have the space to add a bedroom, which meets your needs.