Many home buyers are move up buyers. They often either want or need to use the money from their present home in order to purchase their new home. There are three common strategies they choose from:
- Sell their current home first then buy their new home.
- Buy their new home first then sell their current home.
- Obtain a bridge loan to cover the purchase of their new home while they sell their current home.
If they sell first they risk not owning any home. If they buy first they may have trouble qualifying for a new mortgage or they may be forced to pay the mortgage on two houses while one is empty. Typically, bridge loans have high interest rates and significant up front costs.
Looking at the sales price vs. list price for homes in both the area where they currently own and where they want to move to will give them a way to judge how hard it will be to sell and how hard it will be to buy.
For example, the high number of houses sold in Palo Alto over list price around 2014 indicates it would probably be easy to sell a home there but there would be a lot of competition to buy a new home.