How to make this transaction work.

Question

Hey everybody

Heres the scenario.

Just looking for advice not another agent solicitation

My mom has a house in Pleasanton California worth 1.5 mil and 1.7 and a sizable chunk of equity in this property . She is looking to downsize and pay cash for a home somewhere within the purchase price of 1 million dollars.

The problem. She’s not willing to sell her house and do rent buy back for a few months and she’s not willing to sell and find a place to live for a few months while she shopping for another house.

So basically her buying this other downsized house is contingent upon the sale of here current primary residence which I believe makes her offer a lot weaker especially in our hot Bay Area market.

How would you tackle this problem, what are some options ?

Wilson Lau · Answer

For reverse contingency or seller financing to work, in reality, you really need to be the highest bidder with a strong story to convince the sell side. At the same time, you either know the seller, or the seller needs to be an ultra high net-worth individual who is in no rush to receive his money.

This is a chart of active vs. pending. Ratio under 5 indicates sellers are still in control. I should have included DOMs there but most places are seeing increase from ~10 days to ~18-30 days.

On a side note. Yes. It only takes 1 willing buyer or 1 realtor to create a ripple effect on the non-contingency. Especially since COVID, it almost becomes the norm. Inspection only takes 2 days in most major cities, and turn out that 2 days could make or break your deal.@Carlos Ptriawan Remember this one I asked you when it was asking for $1.2MM (ARV $1.7MM), someone bought it for $1.53MM cash with no contingency lolhttps://www.zillow.com/homedetails/3411-Merrimac-Dr-San-Jose...

Bill B. · Answer

And save the hundred or hundreds of thousands for taxes if she paid less than $1.3m give or take.

Jason Wray · Answer

Patrick,

I would have my Mother do a cash out refinance pull out enough cash to put 75% down and pay off the other portion once the home sells.  Unless that last $250K would cause her monthly obligations to be too high.  When you do a cash out refinance you pay no taxes and if you put 75% down your rate is going to be in the mid to high 5% right now.

There would be No prepayment with a traditional Fannie or Freddie loan so the refi is good on the quick pay off.  The other option would be a bridge loan that allows you to pull out the cash to buy the other home and the bridge is set up on an interest only rate until the home sells so its more affordable.   if there is a DTI issue you or any family member could go on the loan as a "Non-owner occupant" to help with DTI and again if its paid off quickly when it sells it would be a short duration family would be on to help.

Carlos Ptriawan · Answer

It's even getting worse now after Facebook stock going over one hundred dollar within few months, some employee would just cash out their RSU and grab those hahaha

For tech employee that's outside Mag7 company we can't compete with FANG/MAG7 investors/homeowners hahaha lol

Carlos Ptriawan · Answer

LOL, this condition is created by the realtor itself (submitting offer with non contingency) sometimes.Reverse contingency I think it's almost impossible in bay area market though.

This condition is really create worse of the worst for FTHB or someone that want to make the move like above.Btw I see in Jan 2024 that DOM is increasing.

Patrick Thomas Dickinson · Answer

@Carlos Ptriawan can you dm

Me

With the lender information thank

You

Carlos Ptriawan · Answer

there's bridge loan offered by a bank where you can buy new home first and within 6 months you have to sell your primary. Interest was like 8%. if you need lender name I dm you.

Jason Wray · Answer

Patrick,

To make an offer more aggressive you can request the Bank to do a Pre-Underwrite so that your Mother has a "Loan Commitment" in hand which is a guarantee to close generally within 12-15 days.  This supersedes the typical pre-approval letter and again taking cash out of the current home can help offer another aggressive step in a larger Earnest money deposit.

She can use a bridge loan, Cash out refinance , Heloc, or Heloan (2nd to avoid touching a low first rate).

Patrick Thomas Dickinson · Answer

@Bill Brandt

@Arlen Chou

@Jason Wray

She seems to think she she might be able to do what’s called a reverse contingency and sell her house to someone on the contingency that she has to find herself a replace home. With the lack of supply here in the Bay Area that could take months to do in my opinion especially if you’re looking for a quality home here in the Bay Area in a decent area. Any  good neigborhoods are getting multiple offers over asking, so offers need to be really aggressive right from the start.  To boot she only has a few cities she’s interest in.  Then my next thought is who is going to want to buy her house and wait for what could be multiple months for her to find her future home ,probably very few people in my opinion. ?

Thanks for the creative financing choices

Any more to add on this situation

It almost seems like in any situation in order for her offer to be strong she has to have the cash in hand.

Are agents still getting clients home in the background or is most stuff going to market to see who can pay highest and best?

How to make this transaction work.

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