Move-up buyers have unique challenges, and more may be landing with iBuyers because they can fairly easily buy one home and sell another home on the same day.
NEW YORK – Michaela Johnson, an elementary school teacher in Meridian, Idaho, decided it was finally time to put her starter home on the market in May 2020.
The space was starting to feel cramped. For two months, she had taught online from her bedroom during the first wave of the pandemic while her three children, ages 12, 10 and 8 learned remotely from various corners of the house.
“Every area of our house was being used,” she says.
Taking advantage of a hot local housing market, where the median sales price has jumped 44% in the past year, she listed her 1,200-square-foot, three-bedroom, two-bath house for $284,900, nearly double the $145,000 she’d bought it for in 2014.
“I just kept getting notifications, saying ‘Can I see your house? Can I see your house?,” she says.
Johnson received multiple bids above the asking price, and she and her husband finally accepted one that offered $20,000 more. “And they didn’t want any inspection,” she says.
As easy as the housing market has been for sellers, buyers have had to navigate a market characterized by double-digit price growth and limited options. Those looking to both sell and buy face an undertaking full of uncertainty.
The median U.S. sales price for a single-family existing-home rose to $357,900 in the second quarter, up 23% from the same period last year, according to a report released by the National Association of Realtors in August. Nationally, the inventory of homes for sale is down by nearly 26% over the past year, meaning 223,000 fewer homes were on the market.
Most buyers (51%) who bought a primary residence home between July 2019 and June 2020 were previous homeowners, according to NAR. The proportion of first-time buyers fell to 31% from 33% in 2019, the lowest share since 1987, when it was 30%.
Given the competitiveness of the market – with nearly four offers on every property sold – it can be tricky for move-up buyers to navigate the process.
“It’s a puzzle of timing,” says Taylor Marr, lead economist for Redfin. “When do you move out? When do you put your home on the market? When are you able to have secure financing and make offers?”
The current seller’s market allows little flexibility for buyers. For instance, in a balanced market, it is common for buyers to make an offer contingent upon the sale of their home, Marr says. “But that is highly unlikely in this market,” he says.
In fact, some sellers are now asking for rent-back options, sometimes free of charge, for a couple of months so they have time to win and close on their next home without having to move twice.
“It can be a pretty competitive offer for buyers to make … because a lot of people looking to relocate might want that extra cushion of time too,” Marr says.
That was one of the factors that worked in favor of the buyer as multiple bids came in for the Johnsons home: He was relocating from Utah and wasn’t in a hurry to close, giving the family time to hunt for their next home.
William Thomas, a mortgage broker in Woodstock, Georgia, decided to trade up his house in the middle of the pandemic. His wife had homeschooled their four children for years and the pandemic had forced him to work from home, too.
“I needed a dedicated office, and we didn’t have space for that,” he says.
But the thought of showings with everyone at home was unappealing.
“We’d tried it once in January of 2019, and it got tedious to leave the house for four to five hours several days a week,” he says.
When he put some feelers out to get an idea of the property value of his house, he was contacted by a few iBuyers who said they could buy from him. He decided to accept an offer from Opendoor.
“We didn’t want people in our house with COVID, for one; we didn’t want the inconvenience of being out of the house,” he says. “We knew there were a few things that needed to be repaired. I’d already spent $80,000 on the house.”
Opendoor offered $259,000 for the house he bought in 2013 for $137,000. After Thomas found a house he wanted to purchase through Opendoor, he was able to schedule the closings on the two properties on the same day.
“That was a big plus,” he says. “We did not want to be homeless even for a day. We were really, really, really worried that something could go wrong and that the sellers could back out.”
Many iBuyers, including Opendoor and RedfinNow, also are making cash offers on homes that sellers can use to buy their new home, making them more competitive buyers.
When Lisa Sklar’s youngest child graduated high school in Chappaqua, New York, she knew it was time to sell her home. She’d always wanted to move to Boca Raton, Florida, to be close to her family. The house had been built 27 years ago by Sklar and her husband, and they wanted to sell the house as-is.
It sold for $1.05 million in December, close to double what they had built it for. One thing Sklar was not worried about was lining up her sale and purchase. Sklar, a men’s personal stylist at J. Hilburn, and her husband, Michael, rented a condominium in Boca Raton last year and decided to take their time studying the market and viewing homes.
“We are not the nervous-type people. We moved from our home to an apartment building with no real concern about COVID,” she says. “We wear masks and are vaccinated. We stay safe.”
She also felt right at home in the new place.
“It’s the same kind of people, like my friends in Westchester,” she says. “Either they come down to vacation because they have parents here or they’re now buying homes here. Boca is just an extension of New York.”
But buying a place in the super-heated Florida market was another story. In July, Boca Raton home prices were up 20% compared with last year, according to Redfin.
“We’d see something we liked and when we decided to make an offer, they were already gone. If you wait overnight, it’s no longer available,” she says. “I mean, that’s how hot the market is. A thousand people a day are moving to Florida.”
So after losing several bidding wars, the Sklars made a same-day offer on a house for $1.2 million and won.
Two days after the seller signed a contract accepting Sklar’s offer, she received two offers for $1.35 million.
“But she couldn’t get out of our offer because it was in contract,” says Sklar. “The moral of that story is that had we waited till the next day, we would not be here today because the home would have gone into a bidding war.”
Sklar’s advice? Be patient and be available. Study the market so you can feel confident in making that same-day offer.
Barbara Dopp, a real estate agent in Boise, Idaho, who helped Michaela Johnson sell her home, says trading up, even in the pandemic market, is a good idea.
“Don’t spend a huge amount of time in a home that does not work for you. Take the equity that’s in the home you live in now put it into another home that works better for you” she says. “Grow the wealth in that house.”
Johnson spent some time looking for existing homes but didn’t have much luck.
“Existing homes were really hard to come by because they just came on the market and pretty much sold the next day or two. So we had to be constantly, always looking,” she says. “So we decided to go the new house route.”
They found a new 2,300 square-foot house for $371,990 last August. The timing was perfect. All the remaining homes in the new subdivision sold in the next few months for a lot more than what Johnson paid.
Boise is now the nation’s most overvalued market, where homes are selling at an 81% premium, according to a new report published by the Real Estate Initiative at Florida Atlantic University. Marr, the Redfin economist, says people relocating to another market should take the time to study the local market as they tend to be anchored to the price point at which they sold their home.
“So when they’re moving to a new area that’s maybe cheaper, these relocating buyers tend to be overly competitive and overbid on homes,” Marr says. “We’ve seen this a lot with California buyers when they move to Austin and Boise.”
Given the seller’s market, Johnson believes it’s best to wait and see if you are looking in the Boise market.
“It’s very stressful. I noticed that most buyers are just giving up everything. They’re not expecting any inspections, they just want to get in the house,” she says.
“I don’t think that’s a good thing.”
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