When I was a kid, stacking dominoes was a favorite pastime for rainy days. Make intricate patterns, twists and turns, jumps. It was entertaining to see just how long you could make the chain and watch one knock down the next.
These days I work with a different kind of domino; Domino Deals. That’s when there is one transaction that is dependent on another moving forward in order to happen. For example, a buyer wants to purchase my seller’s house, but they need to sell their own house in order for the purchase to go through. The second transaction (my seller selling their house) is dependent upon the successful completion of the first. And sometimes there is more than one domino level. Sometimes there are two or three. Or in extreme cases, four.
Frankly, Domino Deals make me feel barfy. There is a lot more risk involved in these transactions because the number of contingencies that need to be satisfied multiplies. And if one party can’t complete their contingencies then the entire stack of deals falls down, like a big house of cards.
Here’s how it works. The buyer for my seller’s house has to sell their own house. That means a successful home inspection, appraisal, and mortgage commitment letter for House #1. The buyer for my seller’s house then needs to do those same things on my seller’s home; successful home inspection, appraisal, mortgage commitment for House #2 (my seller’s house), as well as selling their house so they can then use the monetary proceeds to make the purchase of House #2. Then let’s suppose that my seller also wants to buy a house. The sale of House #3 is then contingent upon my seller (now buyer) having a successful home inspection, appraisal, mortgage commitment and sale of their house (#2) in order to buy.
Eeeeeek! Do you see why these make me feel barfy? There’s a lot at stake for each party. A lot of time and money that can be lost (inspections, appraisals, etc.) because something didn’t go right with just one step.
So if there’s all of this extra stress and risk, why do people even participate in the Domino Deals? Because the current market environment makes them necessary in many cases. People have to move, but have lost equity in their homes. They are either financially unable or simply unwilling (smartly so) in many cases to carry two mortgages at once, making it a necessity that they sell their home in order to purchase again. If a seller can’t find a buyer that doesn’t need to sell a current home they’ll often consider moving forward, as long as the buyer already has their current house under contract.
The parties in these transactions typically realize that they all need to be motivated and want to succeed. This is not the place (typically) for the ultra aggressive buyer or seller. Usually you’ll find more collaboration than hostility. In that case, it’s a welcome change from the demanding Buyer’s Market buyer that we now see.