A New Way to Buy Before You Sell

I recently heard about an interesting program that enables eligible contingent buyers to purchase their replacement home before they sell their current one without getting a bridge loan. This is done by the program entity setting up an agreement with you not as a lender but rather as a standing “backup offer”.

When you go under contract, their agreement stipulates that they will put a backup offer on the “departing” residence to release you of any home selling contingency, and you then have 90 days after you close escrow on the replacement residence to get under contract with any other offer before they step in and purchase your existing residence, and you can usually have your existing agent continue to handle the listing.

It is only available to people who have at least 30% equity in their home, and there are additional restrictions on the types of transactions that will qualify. And according to their representative, out of 1600 deals to date they have only ever purchased one home.

Under the program, you continue to work with your existing agent and lender, with one flat fee of 2.4% of the price to be paid on the departing residence to participate. No interest is charged on the equity unlock, and the goal is to unlock as much equity as you can, plus up to 4 months mortgage and moving expenses. The amount of the unlock isn’t a strict percentage, but rather a proprietary algorithm and the loan payoff value is your old mortgage balance left to pay plus whatever the equity unlock was. Purchasing your home is done as a last option, and if it sells for more than the unlocked equity amount, you get the additional proceeds per their upside guarantee, minus regular selling costs and a 2.5% program fee.

As I read it, the benefit is that you get to compete with non-contingency offers and complete your purchase without a home sale contingency since you have what amounts to a standing guaranteed offer on your place. The up-front cost of this benefit is 2.4% on the unlocked equity, which by my calculations if you take the full 3 months to sell would come to the equivalent of a loan at

9.6% interest rate. And the downside appears to be whatever delta exists between the current price you are willing to consider for your current home and what it eventually ends up selling for, plus an additional 2.5% program fee at disposition.

It would be advisable to have an in-depth discussion with a qualified financial or tax advisor reviewing the specifics of your situation to help determine whether the benefit is worth the costs and downside. I would also recommend taking a good look at the terms of their “upside guarantee” as part of your due diligence, but at first pass the program seems like an option worth considering in cases where you’re in a competitive bidding environment, which we are still seeing happen in areas like Pleasure Point and the Lower Westside.

Datta Khalsa is the Broker and Owner of Main Street Realtors in Soquel. He can be reached

at 831-818-0181 or datta@mainstrealtors.com