If you're selling a property and buying one around the same time, you may be able to opt for what's called a concurrent closing. In its simplest form, this just means two closings done back to back -- or at least in very quick succession.
These closings are a way of streamlining the typically difficult task of buying a new property and selling your previous one simultaneously. They can also help ensure you have the funds to buy your new property (as long as the property you're selling closes first).
How a concurrent closing works
Concurrent closings usually go like this: You'll attend your closing appointment for Transaction A -- ideally the home you're selling. You and the buyer will both sign your documents, and the funds will be transferred and the sale completed.
Once this is done, you'll turn around (at the same title company) and do the closing on the property you're buying -- Transaction B. Both closings may occur on the same day or it may be a few days apart, depending on how long funding takes.
Concurrent closing versus double closing
Concurrent closings shouldn't be confused with double closings. Double closings are a strategy used in wholesaling real estate, and they're a lot harder to come by. In these situations, the investor essentially uses the funds from their end buyer to fund the purchase of the property.
It works like this:
- The end buyer's money goes into an escrow account or to the attorney handling the transaction.
- The investor uses that money to fund the purchase of the property and pay the seller.
- The investor, now the owner of the property, then sells it to the end buyer, getting the difference between the two prices in cash.
It's essentially a way for a wholesaler to flip a property without putting down any of his or her own money.
Pros of concurrent closings
The biggest advantage of a concurrent closing is that it ensures you have the money necessary to fund your new purchase. Because you'll close on your old property first, you'll have the proceeds from that sale to use toward your down payment and closing costs. You will also have paid off that old mortgage loan, which will likely help you in qualifying for new financing, too.
These closings also remove a lot of the hassle from the transaction. You don't have to go to two different title companies, and in many cases, you can complete both the sale and the purchase all in one day. It's a nice way to streamline a typically complicated process for everyone involved.
Finally, if you're physically moving from one property to the next, a concurrent closing can keep you from being displaced or needing to rent storage space. You can move out from one home and into the other almost simultaneously.
Cons of concurrent closings
On the downside, concurrent closings require perfect timing. Any delays on your sale transaction mean pushing back your purchase, too -- and the seller might not be OK with that.
These types of closings are simply riskier for sellers, and it may mean agreeing to certain concessions in order to make it happen. If too many delays occur, it could even mean losing out on your new property altogether.
Concurrent Closing Pros and Cons
|• Selling first ensures you have the funds for the down payment and closing costs on your new property.||• Closing two transactions at once requires impeccable timing and communication.|
|• It streamlines both transactions and reduces hassle.||• Delays on the first transaction could push back your purchase.|
|• Having your first mortgage paid off may make it easier to qualify for a new loan.||• Problems with the first transaction could also mean losing out on your new home.|
Tips for concurrent closing success
In order to make concurrent closings work, communication is critical. You'll need to be in constant communication with your real estate agent, escrow officer, and title agent and make sure you're on track for an on-time close -- and often. If anything comes up that could delay your first transaction, you'll need to communicate that with the seller and adjust the second closing accordingly.
If you're hoping to close both transactions on the same day, then choosing a morning closing time can also help. This ensures you have somewhat of a buffer in case funding takes a while or some other delay crops up on your closing date.
You should also have a backup plan in case the first transaction falls through and the second one can no longer be delayed. Can you use cash? What about a personal loan to cover the down payment? If you don't want to lose the new property you're looking to purchase, having a contingency plan is key.
And last but not least, choose your real estate agent carefully. Make sure they have experience in concurrent closings, and always use a title company they know and have done work with in the past. You want to be sure you're in capable and experienced hands when opting for such a nuanced undertaking.
The bottom line
If you're selling a home and buying a new one, a concurrent closing may be able to help you do it. Just make sure you choose your vendors and agents carefully, and be ready to communicate constantly with other parties in the transaction.
Concurrent closings are all about timing, so plan ahead, over-communicate, and anticipate possible delays before they can happen. If an issue does arise, let the seller know immediately -- and make sure you have a backup plan just in case. Failing to do so could mean losing out on that property and ending up back at square one.
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