Moving can be risky. Granted, it doesn't usually start out with much jeopardy. You shuttle yourself and your belongings from a college dorm or your parent's house into an apartment, and then maybe to another apartment and another. But when you buy a house, that's when the financial risk kicks in. A move can be incredibly expensive – even if everything goes perfectly.
There's no way to remove all risk from selling a residence and moving into another, but if you want to try to minimize the financial dangers, then, as they say on TV – kids, don't try any of this at home.
Selling your home before closing on a new home. Plenty of people do this because they need the money from the sale of their current home to buy the next one. But this is actually a risk. It's one of the most common risks homeowners take, according to industry professionals, and while problems may be rare, it can be a colossal mistake.
Tamela Ekstrom Derian, a real estate agent who owns HAVEN Real Estate + Design in Detroit, says she sees this a lot.
"When I say you should close on the home you are buying, I mean get all the way to the closing table, sign and get the keys before you list your current home," Ekstrom Derian advises. "If the people you are purchasing a home from have made the mistake of not purchasing a new home before they closed with you, you could find yourself in a mess if they get desperate to stay in the home you are trying to buy because they have nowhere to move."
Allen Shayanfekr, CEO and co-founder of Sharestates, a real estate investment company based out of Great Neck, New York, agrees.
"A lot of people take that risk, but it's a big gamble," he says, citing a friend of his who last year moved his family in with his in-laws for a few months while looking for a new house and waiting for financing to come together.
If you aren't going to buy your home after the closing of your existing one, Shayanfekr says that you should at least get preapproved for a mortgage.
"In essence what you want to have is a commitment from a bank that is willing to lend on the new purchase, with a clause stating they need to see the closing statement from the first sale to fulfill the closing requirements," Shayanfekr says. "If done right and controlled, you can ideally close the sale of the first and purchase the second on the same day – sale being in the morning and purchase being later in the day."
Moving out of your home, so you can sell it more easily. Closely related but different. Maybe you decide on purpose to rent an apartment, or you're going to move in with a family member, while you sell your home. That's fine, as long as you're prepared that things may not work out the way you want them to, says Dylan Diersen, a real estate agent with First Weber Realtors in Appleton, Wisconsin.
"I had a seller once who had no mortgage but was talked into taking out a loan to store all of her belongings and then renting," says Diersen, who worked with the seller long after she was talked into this. "As the original listing agent told her: 'The home will sell better without you here.' Can you guess whether or not her home sold?"
It didn't, but at least the seller had a house to move back into.
Don't use your retirement money as a down payment. You are probably thinking that there's no way you would do that, but maybe you've never fallen in love with a house that's just outside of your reach. In any case, Elysia Stobbe, a Jacksonville, Florida-based branch manager at NFM Lending, says that she has seen it happen several times – and that it hasn't always worked out.
"I have had more than one client liquidate their retirement to use as a down payment to purchase their new home thinking they were going to sell their current home before they closed on the new home," Stobbe says. "Their rationale was that they intended to put their money back in the retirement account using profits from the sale before the penalty phase for early withdrawal kicks in."
Considering the penalty for taking out money from your 401(k) is 10 percent, that's a considerable chunk of change that you're putting on the line if things don't work out as fast as you hope they will.
Bidding wars can be exciting but don't always happen, and often the first offer is the best one you'll get.
Pricing a home too high. That doesn't sound risky. If you price it too high, you just bring down the price, right?
Well, yeah, but many real estate agents caution against it. "This is especially dangerous in a fast-moving market," says Michael Schaffer, a broker and owner of Reason Real Estate, serving Denver, Colorado.
He explains: "Once a home has sat on the market for too long, and too long depends on the market, it starts to be assumed by buyers and agents that there are problems with the house. That tainted perspective can continue even after the price has been reduced to where it should have been priced earlier."
Don't be too cheap when it comes to home improvements. You're selling your house and trying to make a profit. It's understandable if you don't want or can't do a $15,000 remodel on your master bathroom in order to entice buyers.
But keep in mind that what you're willing to live with may not be what someone else will be willing to live with. Kristina McCann, a broker associate with Alain Pinel Realtors in Orinda, California, says that she had a homeowner do a remodel on their kitchen, and it was done well – but to save $2,000, they elected not to modify a wall and lost a side access door to the backyard.
"How do you get to the backyard to barbecue?" McCann asked.
"We don't," came the response.
McCann says that while the home sellers ended up saving $2,000 on that remodel, they ended up knocking down their home value by $20,000.
Only complete a do-it-yourself project to help sell your home if you have skills. Your problem may not be that you're too cheap when making home improvements. It may be that you're in no danger of ever getting your own HGTV home improvement series. No danger whatsoever.
Diersen's pet peeve is a bad paint job.
"A good color painted sloppily will really devalue a buyer's perception of a home. The worst I've seen is a seller who painted her entire home a great color, but decided not to pull the wallpaper off first. The home looked horrid. Other bad paint jobs include paint on ceilings or non-straight edges where ceilings or different colors meet," he says.
The message you're sending to homebuyers, according to Diersen: "You don't know what you're doing. And they wonder what else, that's worse, might be wrong with the home."
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America"
Born in Columbus, Ohio, Williams lives in Loveland, Ohio, with his two teenage daughters and is a graduate of Indiana University. To learn more about Geoff Williams, you can connect with him on LinkedIn or follow his Twitter page.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.