The phenomenon of “stacked sales” – one home sale contingent upon the sale of another home and that one contingent, too - is a new reality in the local real estate market. It a great extent this is the result of the very tight market, with low inventory and few rental properties available. The stretched out mortgage process just adds to the problem.
A stacked sale scenario starts when someone decides to sell their house and starts trying to plan for
Let’s assume that Seller ”B”’s house is a nice little starter house and that he priced it properly for the market . Buyer “B” gets an offer quickly from a first time buyer and accepts it. The first time buyer is moving out of an apartment, so he has nothing to sell. So, Seller “B”, with accepted offer in hand resumes his role as Buyer “B” and rushes back to Seller “A” with an offer to buy the house of Seller ”A”, contingent upon the closing of the sale on his (Buyer “B”) house.
Seller ”A” and his agent look over the deal and decide to accept the contingent offer. Now Seller ”A” has a real reason to become Buyer “A” – his house is “sold” and he needs a place to live. So he goes out into the market and find the perfect place that is listed by Seller “C”. Buyer “A” makes an offer that is contingent upon the sale of his hose closing with Buyer “B”. IF Seller “C” accepts we now have stacked sale that are three sales deep. It’s sort of like lining up dominos and watching them all fall down when the first one and the head of the line is pushed over. By the way, what do you think Seller “C” is going to do? Unless he is moving into a retirement home, he’s going to need a place to live; so he becomes Buyer “C” and may add to the stack.
All of these buyers and sellers are, of course, going to be trying to pull off this string of sales with the minimum amount of personal disruption to their lives; so they’ll try to coordinate the closings such
What’s the solution? There is no easy answer for that question. When the market was not so tight and the mortgage process was less stringent, sellers could count on having time to look for a new place to live after they had accepted a contingent or non-contingent offer. These days that time pad is pretty much gone and contingent offers are more prevalent. One “solution” is for sellers not to accept contingent offers; however, in certain price bands the market is slow enough that any offer must be seriously considered.
Most of the time these convoluted sales work and all of the sales close; however, it only takes one glitch somewhere in the chain of sale to mess the whole thing up. The chain works best of the buyer furthest down the chain is an investor or a totally unencumbered buyer, like a first time buyer just out of college or moving from an apartment. In today’s market it is a lot harder to say no to an offer in certain price bands, even if it is contingent. When a property has been sitting on the market for a long time almost any offer looks good to the seller. The real estate agents involved will try to evaluate risk in the whole chain of sales before making recommendation to their clients and will often caution against accepting an offer, no matter how good the price seems to be.
What should you do as a seller? I certainly advise that you have a plan for a variety of potential scenarios. Have a plan for what you would do if the place sells quickly and the offer requires a quick close and immediate occupancy. Do you have a place to go and a place to store your stuff? Have a plan for contingent offers. Will you accept a contingent offer and what will you do to plan for your one move? Do you need post-closing occupancy or can you be out at closing? Are you flexible on the timing of the close and willing to pull it in or stretch it out a bit to accommodate the buyer, if needed?
Selling a home doesn’t have to be a stressful process, but it does take planning and some thought about the various alternative scenarios that can occur. Stacked sales are a new reality of the marketplace, so they need to be dealt with and not just avoided. You should have good answers in mind before accepting any offer to these questions -
Where am I planning to go from here?
- How much time do I need to be able to move out? Do I need post-closing occupancy? How much?
- How will I get my stuff moved out of my current house and into storage or to another house and what does that cost? DO I rent a truck and the move myself or hire it done?
- What would it cost for temporary living or temporary storage of my belongings?
- What happens if any of the contingencies is not met? Have I made sure that I did not backed myself into a corner on a new place?
Sit and discuss those “what if” scenarios with your Realtor before they pop up and demand a quick decision.