Take Advantage of the Market--Upgrade Now!

“We’d love to get a bigger place, but I think we’ll wait until the market improves.”

I’ve heard that statement several times lately, and it occurred to me that maybe now is when you should upgrade because the market is soft. Let me explain (put your math hats on, please).

For many years in this market, homes sold for 95% of their list price, on average. In other words, homeowners were giving 5% discounts. A lot of these homeowners, then, became home buyers, and, on average, would pay about 95% of the list price for their new home.

Mathematically it looked like this:

Old House
Listed For $100,000
Sold For $90,000 (%5 discount)

New House
Listed For $200,000
Bought For $190,000 (5% discount)

Difference: $190,000 - $90,000 = $95,000

The Advantage of a Soft Market

Now let’s take a look at what’s going on right now. I’ll agree that it’s more of a buyer’s market—homeowners, in many cases, are giving discounts of 10% or more. As you can see, that’s not all bad for those of you who are upgrading or wanting to build a new home:

Old House
Listed For $100,000
Sold For $90,000 (10% discount)

New House
Listed For $200,000
Bought For $180,000 (10% discount)

Difference: $180,000 - $90,000 = $90,000

These folks had to give a 10% discount to sell their old house, but got the same discount when buying their new one. And since they were upgrading, the discount on the new house gave them a greater dollar amount, thus they “saved” $5,000. (By the way, this opportunity applies to those of you who want to build a house too. The new construction market is even softer than the existing home market.)

Not only can you take advantage of this market to save some money during your upgrade, you have a better shot at buying your new home using a sale and settlement contingency. This type of contingency allows you to get out of the contract on the new home (with your deposit) if you cannot find a buyer for your old home. In hot markets, most homeowners will turn down an offer with a sale and settlement contingency because they know that another offer will be coming soon without one. In slower markets like this one, many homeowners are glad to just get an offer and will accept the contingencies.

We all know what happens when the market is hot: you find a great house, but so do three other people. Then you feel obligated to offer a little bit more than you would have if you were the only buyer. Or, you keep finding the perfect house, a day after it went under contract. So, if you can find the house you want at a significant value, don’t hesitate to make the move.