Written by Tyler Laird
The predominant question we have been getting of late is this:
“If I buy a new home today and the market continues to slide, how do I ensure that I don’t get stuck with two properties?”
Back when I started trading in 2009, the discussion when meeting a new client was around whether that individual wanted to buy a home or sell their current home first. Things happened slower then. It wasn’t uncommon for GOOD houses to sit on the market 45 to 60 days. People had the luxury of time and generally they were split. These choices are personal and the benefits of both maybe better weighed in a future article. We are quickly heading back into a market much like 2009 but the hurdle is that the market is back sliding quickly and it’s hard to time the wave.
Now, if you have tried surfing, it’s likely that you started on a huge foam board with tons of surface area which in turn gave you the best chance to shred. You hopefully also had a guide that told you exactly when to start paddling. We are that guide and a “first right of refusal” can be your big foam board.
“A Changed Market Demands a Changed Strategy”
A first right of refusal is a term/condition in an agreement of purchase sale that makes the purchase agreement conditional on the sale of your current home, at a price and with terms satisfactory to you in your sole and absolute discretion. In essence, you will not be required to buy the new home if you can’t sell your current home. The time line of a first right of refusal can vary, anywhere from a day to a year. It’s completely negotiable.
The reverse strategy can also be used when selling a home. You can make the sale of your home conditional upon a specific property purchase. This strategy would be used when the seller of a home that you want to purchase, will not accept a first right of refusal. This allows you to back out of the sale if your desired property sells before you get what you want for yours.
It’s important to remember that these strategies are essentially insurance plans and insurance plans aren’t free. They mitigate your risk by transferring the risk onto the other party. Therefore, it’s likely that if you want a first right of refusal on a purchase, you will have to pay a little more for said property and it’s reasonable to assume that you will take a little less for yours. For those who opt to enter into one of these strategies, a slight increase or decrease in price is worth the restful nights.
Please feel free to reach out to us discuss both of these strategies in further detail and to determine if they are right for you.