The answer is yes, it can be done! However, it’s very important to know that there are many factors that go into making a situation work where someone is selling and buying real estate simultaneously, especially when there’s the need to use the funds from the first transaction to purchase the new home without having to rent an apartment in between. Today we ask the experts, Howard, Marie and Jeff of the MARGOLIS ESPINAL ADLER Team if this can be done, how it can be done, and what the key factors are that go into making sure their customers are successful in buying and selling simultaneously.
Q: How many deals have you done where a customer is buying and selling at the same time?
Howard: “We’ve been doing this for years since we’ve been together. We’ve been working together for eight years and as partners for six years and we’ve done these “sell-buy” at the same time deals every year, but for some reason 2017 was the grand-daddy of all years on this. I mean, we did four or five deals, and maybe that number doesn’t sound like so much, but you have to think about all of the moving parts that are involved.”
Q: Do you think people are hesitant to sell and buy real estate simultaneously?
Jeff: “It’s so incredibly daunting and stressful for a customer who wants to buy something better and bigger, but needs to sell what they already own in order to make that purchase, and doesn’t want to rent in between. There’s a lot of detail that goes into that and a huge amount of hand-holding and this is Marie’s thing. I sit there and I’m thinking “no, they can afford a rental in the interim, and let’s do this in isolation”, and Marie just forges ahead and you’ll see from our customer testimonials how happy people are with the outcome.”
Q: Do you see a pattern of any sort with price/time of year/etc. when people will sell and buy at the same time?
Jeff: “It seems to be really common where the buyer essentially needs the funds from the sale of their current home before purchasing the new home particularly in that $1.5 to $3.5/4 million range. Someone purchasing a $6-7 million dollar apartment, in our experience, likely doesn’t need the funds to be moved so quickly. Sadly enough, a $4 million budget, while still luxury, is a middle kind of market in NYC, so it’s all financial and not about the calendar.”
Marie: “Adding to that, even though the customers normally looking to do this are extraordinarily well-qualified, with (on average) a combined income of .5 million and $1 million, they are still having to structure it this way because of the need to tap into the capital funds. In the end that’s what it all translates to – you have somebody that wants to make a move either for personal reasons, for example their family is growing, they’re having another child, etc. or they’ve been living in the same apartment for 5 years and they want change, and they simply cannot afford to go buy something without having that money from selling their current home, yet it’s a conundrum because if they rent in the interim, they are out $50-$60,000 for various moving expenses and rent for a year afterwards.”
Q: How exactly do you ensure your client will be approved for the apartment they’re applying for since they’d then be in contract with their previous home?
Jeff: “The whole other part of this equation are the banks and the buildings, right? So the mortgages are based on income, not money you have in the bank. So when they’re based on income, you have to be able to get a mortgage. Also with co-op boards, they’re all over your finances. They want to see what your monthly expenses are, what your debt-to-income ratio is, all of these things. So you really have to walk a very fine line and build a narrative to make our buyers look as attractive as possible to these buildings so they’ll get through the approval process. That’s where Marie’s background in finance comes in and my background in customer service comes in. This is 24-7 hand-holding and it can seem daunting. A transaction doesn’t happen in 15-30 days, it can take 60-90 days and when you’re doing a sell and a buy at the same time, you’re talking 4-6 months before both transactions are completed, although we have done it in less time.”
So what exactly does the process look like? Jeff, Marie and Howard give a breakdown on how the process should go with a few easy guidelines. Disclaimer – even though these are set up in easy-to-follow strategies, the process is a lot more complicated than one may think! The customer should always keep this in mind when choosing a broker to work with and make sure they’ve already been through the “sell-buy” process numerous times.
Determine your timeline.
Determine what timeline works best for you and then work backwards from the timeline you’ve created with your broker. Take into consideration any work events, life events, family events, etc. that may be scheduled to happen during this timeline that could alter plans. Is someone in your immediate family getting married? Is someone having a baby? Is someone going on a long business trip/vacation? These are all things to take into consideration when creating a timeline, because once it’s created, sticking with it is imperative.
Lay everything out on the table with regards to financials, etc.
Laying everything out on the table for your brokers is something that can’t be stressed enough. Questions to ask: Are there enough assets in place to have a down payment or do we truly need to wait until the property is sold until we can tap into the cash from the previous property’s sale? Being honest with your brokers will only help the process!
Evaluate the market/agree on pricing.
Pricing correctly is everything. Working from the timeline you and your broker originally came up with, research and evaluate the market and work strategically with your broker on pricing the apartment to sell and to maximize your return in an efficient period of time. Example: Customer “A” has a six-month timeframe to be in their newly purchased home. Since that’s a constricting timeline, Customer “A” and their broker need to make sure everything is going to run smoothly by ensuring they have every detail of the process figured out. From day one, make sure the property is priced accurately and that all pieces of how the apartment go to market are thought out. Also, it’s imperative to make sure that the apartment is staged properly, the photography is spectacular, the narrative for the listing description makes sense, and that it’s going on the market at the right time. All of these factors will affect how the property does on the market, and will ultimately determine if it sits, or if it sells.
Hit the market and follow the pulse of the listing over the first month, then reevaluate if needed.
In general, it’s easy to know very quickly how the listing is doing based on client feedback. Be sure to listen to what prospective buyers and their brokers are saying about the property and how they’re engaging at open houses, etc. Usually if things are done correctly, an offer will come in within one to two weeks if there are no building issues, such as maintenance, assessments, legal issues, etc. As a rule of thumb, the barometer for knowing if anything needs to be shifted is two weeks. If no offers have come in and there are no serious prospects, it’s time for the seller and the broker to address the issues and talk about how to fix them in a timely manner. Remember: time is of the essence!
Typically in these situations, within one month (and possibly up to 45 days) the property is in contract. Once the home is in contract and the terms of the contract are understood, then creating a narrative and building a story is the next part for the customer purchasing the apartment they’re interested in. Keep in mind this entire time, the broker and customer have been viewing apartments and generally have their eye on one or two homes that they love. They have also done their due diligence and are ready to move forward once their current place is in contract.
All along this process, the customer and broker have been looking at properties to purchase and will act on a property of interest once the previous property goes into contract. Once the customer is in contract on the new property, they will go before the board in their interview, which is when it’s imperative to create a story to ensure they’re approved.
Create a narrative (for Co-Ops)
It’s all about positioning a buyer strongly, in a packaged and very buttoned-up way, and creating a narrative where their qualifications are properly laid out in front of the board. All of this is built into the financial rhetoric and whoever is on the receiving end of the offer is usually much more comfortable with the financials that are being presented, especially if the funds are not reflected on the bank statements.
If all goes well, the broker ensures that the timing works out where the customer will close on the original property. Then shortly thereafter, they close on the new property with the proceeds from the sale of the other property.
Over the course of their six-year partnership, Howard, Marie and Jeff have done a significant number of transactions where their customers are buying and selling concurrently. When asked what the most important factor is, Marie says, “If you’re thinking of selling and buying simultaneously, make sure you are working with a seasoned broker who has been through the process numerous times. I can’t stress that enough: Always work with a really seasoned broker! It’s not something I would recommend doing on your own, with a broker who is just starting out or without proper guidance in general. Your broker has to understand all of the red flags and all of the little things that that need to be caught, which will happen if they’re familiar with the process. Problems do come up every so often and things do go wrong, but in the end, things always work themselves out and our clients are very happy in their new homes once the process is done.”