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Can you walk away?
With the recent turn-around of the market (writing as of fall 2017), a number of people have been caught buying a costly home but unable to sell their own.
Earlier this year, when multiple bidding had (temporarily) become the norm, any buyer who wanted a chance at making a deal could not afford to include a condition of financing in their offer, or any other conditions for that matter.
Some of those buyers, having bought firm, are now trying to sell their home in the turn-around market, and are having little success getting the price they needed to close the deal on their new home.
On top of that, the mortgage companies are having appraisals done to make sure that the property they are financing has as much value as the price it was bought for. With values falling back to a more normal level, the appraised value may be significantly less than the selling price.
All of this creates a two-pronged dilemma for the buyer, as they may not qualify for as large a mortgage as they had planned, and may also not receive the selling price they hoped for on their existing home.
What should a buyer do in this situation? Quite a number of people have asked me whether they could simply walk away from the deal.
Most of the time, walking away is the most costly option of all the options available to you. There are several other possibilities you should explore first.
What to try first
Borrowing money from relatives or friends, or getting a second mortgage to fill the money gap, is typically the best solution. It allows your deal to go ahead as originally planned, and the extra money spent is an investment, not a wasted expense.
The second choice is making sure that you sell your own home for as much as possible. One way to accomplish this is to ask the seller whether they can extend the closing date, to give you more time to attract the best possible offer.
If you still can’t raise the necessary funds, the next option is to negotiate a mutual release with the seller. Expect to compensate them with a certain amount of money to make it worth their while.
If you walk away
If you attempt to walk away from the deal, the consequences can be serious.
If you already own a home, that home will be the source of the seller’s compensation. Their lawyer will likely register an ‘action pending’ on your home, which will prevent you from receiving the proceeds from your sale until the ‘action pending’ is resolved.
Aside from the financial loss, you’ll be left with the challenge of finding a new home that fits your new budget, and arranging for temporary accommodations and storage.
Want to know more, or need advice for a specific situation? Just ask me, I'll be happy to help.