Memes

I have recently bought a house, and had front row seats to several deals that friends and family have gone through plus spent most my life around the process as my dad was a residential loan officer for most his career. You are correct, it is a long process. But to kick off the official process you draft a purchase and sale agreement, a document saying I want to buy your house for X amount, you also put in the terms and conditions under which you’d like to buy the house. More often than not the document will say the purchase is contingent on the sale of your existing house. The seller can reject this document, counter with altered terms or select a purchase and sale agreement from another buyer more favorable to the seller. Another condition you may hear is the deal is contingent on the results of an inspection. One of the things you may hear lately are that buyers are waiving the inspection due to the competitive nature of the market. Contingencies on the sale of your existing house as the source of the down payment is pretty standard. It’s part of Escrow’s job to coordinate between the two deals to shuffle the money from where it’s coming from to where it needs to end up. Another reason to add the condition to the purchase and sale agreement is most people can’t afford two mortgages at once. My Aunt opted to give her son-in-law’s brother a chance at his first attempt being a real estate agent. They both learned the hard way the importance of this contingency, because though my aunt could afford the down payment they didn’t link the sale of their existing house to the purchase of the new. The pending sale of their existing house fell through but the new house deal closed so for several months they were struggling under two mortgage payments until their original house sold.

Part of the purchase and sale agreement is earnest money and an expiration date. If you back out of the deal without triggering any of the conditions mentioned in your document you forfeit the earnest money. Similar to how Musk would’ve had to forfeit something like $2b for not buying Twitter at $44b. Or Microsoft buying Activision by X date. The document can be amended if agreed upon by both parties, like an extension of the expiration date, but these topics while not directly related linking a sale and a purchase, do add to the complications.

The purchase and sale agreement document is the hard part for standard sales (short of finding something you want), that should be whirlwind fast, but can drag on depending on the circumstances. Some people have a draft ready with their terms and effectively pencil in the numbers once they’ve found a potential house submit and get a response within hours of a house going for sale (mine took ~6 very stressful weeks of back and forth for a complicated situation). The actual sale, the long part, is all that follows with inspection, appraisal, loan rate lock and approval, title, etc. (~4-6weeks at the quickest). There’s lots that happen, but it’s mostly waiting on a crew of other people doing their niche jobs and jumping when they say jump. Though part of the terms could be selling their house, they’d either have their house on the market or have it ready to list as soon as they get an accepted purchase and sale agreement. With that could include a longer safety margin on the expiration date, but your loan rate lock only lasts so long.

It’s a complicated balancing act, but tying the deals together is pretty standard procedure. Though there does have to be breaks in the chain otherwise every real estate transaction in the world would have to buy/sell a house same day in a closed loop like musical chairs which isn’t the case. New buyers, people who forego the condition for a more attractive Purchase and sale agreement and those with enough money to support both are where those breaks in the chain come from.

PS - The only way to use an existing house for part of a down payment without linking the sale of it to your purchase is to refinance or take out a second mortgage on the existing house so you get cash to give to Escrow. Not likely something you’d want to go through on the way out the door. Plus it would raise some eyebrows on your credit report for any potential loans you’d need to buy the next house. The money from the sale should cover the outstanding principal on the previous loan. Refinancing would make that outstanding principal higher digging yourself a deeper hole. The standard option is to use it directly without jumping through other financial hoops.