The last few years have seen unprecedented numbers of people moving out of California to other states. Job relocation, family obligations, or simply seeking more affordable living are all common reasons for wanting to get out of California.

No matter the reason, your first step involves determining how you want to sell your house in California. As simple as it sounds, the process can quickly become complex depending on your schedule, your buyers, and other market conditions.

To help you with this we created this complete guide that walks you through the entire process, plus your different selling options, key issues, and important Tax information you maybe hadn’t considered.

Feel free to use the Table of Contents below to jump around.

Key takeaways

  • You will need to determine the best order of operations for selling your California house, moving to your new location, and buying a new house.
  • Homeowners who choose to sell their old house before buying their next home may consider negotiating for a leaseback of their current house in California.
  • A home sale contingency is a useful contract term for those who want to protect themselves when buying a new home before selling their old one.
  • The process of selling your house in California generally includes three phases: before listing, getting under contract, and closing.
  • Homeowners should appreciate the potential income tax consequences of selling their California house because of realized capital gains.

Determine the Best Approach for Selling Your House in California and Moving Out of State

Different options exist for homeowners in today’s real estate market when it comes to selling their existing home and moving elsewhere.

Each option will come with its own set of advantages and disadvantages depending on your situation, including factors such as your timeline, reason for moving, and financing.

While slight variations may exist within each of the options below, you generally have three avenues for selling a home and moving.

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A Common Method Is to Sell the California House Then Buy the Next One

A logical option is to sell your house in California before buying the next house and moving.

Most people elect to sell their home before moving into the next one because they need the home equity to help finance the down payment. Additionally, moving into a new home before selling often means carrying two mortgage payments for two houses, which can hamstring your short-term cash flow or drain your savings.

While the financial upside of selling your house first is clear, the potential downside is the time it can take to sell a house in California.

According to a recent Elle Mae Origination Insight Report, it takes an average of 50 days to close on a traditional home sale.

You will also need to factor in the time for events that have to happen before you can get an offer under contract (e.g., listing your home, having an open house, reviewing offers, negotiating terms, etc.).

Another important consideration when choosing to sell your house first is the risk of not being able to find your next home before closing. This will mean extra costs and coping with temporary housing like a hotel or Airbnb, further prolong your house hunting.

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You Could Buy Then Sell If Home Financing Is Not an Issue

The flip-side of selling then buying is to buy the next home before selling the old one. For most people, this is not a feasible option unless you have the funds to cover the next purchase or can negotiate a contingency clause in the purchase agreement (explained more fully in a later section).

Again, this can be an expensive route to take because it would mean carrying two mortgage payments at the same time.

A Final Option Is to Rent for a Short Period After Selling the California Home

A final option is to sell your California home but wait before immediately buying the next one.

For some, it may feel like you’re taking a step back to go from being a homeowner to renting but taking some time before rushing into the next purchase can be beneficial.

If you’re moving to an unfamiliar location for a new job or family reasons, then renting gives you a chance to learn more about the area you will eventually buy into.

This way you will be able to make a more informed choice and be able to find a house that you truly love instead of buying sight unseen and going through buyers remorse.

Is Relocation Assistance Available to You?

Renting for a short period can have even greater appeal if you can arrange for your future employer to assist with relocation costs. Depending on the leverage you may have, you could seek housing costs for a few months to reduce some of the pressure of finding a new home quickly.

Items to consider asking for when negotiating a relocation package include:

· Travel costs for trips to find new housing

· Temporary living expenses (e.g., renting or hotel accommodations)

· Moving expenses

· Other discretionary spending for things like furnishing, food, and other needs

Issues to Consider After You Know How You’ll Sell Your Home

When you’ve figured how you plan to sell, a few additional questions and issues may come up that’re worth considering:

#1: “Should I Move Out of My House Before I Sell It?”

Moving out of your house before putting it on the market presents a mixed bag of benefits and drawbacks. It may make sense in your situation if you can work out a couple of logistical issues first.

  • One advantage of moving out before listing is that you won’t have to work around the schedule of your real estate agent for open houses, prospective buyer showings, or other inconveniences.
  • Selling an unoccupied home may also increase the frequency of private showings from other real estate professionals who won’t have to worry about scheduling issues with the homeowner.
  • Additionally, you won’t have to worry about keeping the house in a continuously clean and well-kept state, which is difficult when you’re living there.

However, other concerns about moving out before selling your home are worth mentioning:

  • You still will likely have to pay for utilities to stay on (even though the home is unoccupied).
  • The home may be at an increased risk of crimes like burglary, theft, vandalism, squatting, etc.
  • An inability to stop or limit property damage that could arise during an emergency such as a flood or fire.
  • Some studies also show that empty homes may take longer to sell and will ultimately sell for slightly less than an occupied home.
  • The reasoning behind this may be the confidence that a homebuyer has knowing their purchase is “battle-tested,” which may decrease the chances of future habitability problems occurring.
  • To counteract some of this effect, you may consider working with a staging company to furnish the home and present it in a way to maximize its potential value and garner attention from buyers.

Learn More: How Much Does it Cost to Stage a House?

#2: Is a Leaseback Worth Considering if You Need More Time to Buy?

If you decide to sell your home before buying the next one, a leaseback may be an important term to negotiate into your sale contract.

What is a Leaseback?

A leaseback is where you complete the sale of your home to the buyer, but the buyer agrees to temporarily lease the property back to you.

Why Consider a Leaseback?

This is a common sale contract term in cases where you, as the seller, need extra time to find or close on your next home.

How Does a Leaseback Work?

You can structure a leaseback in a couple of different ways.

  1. One option is to take the rental value and subtract it from the sale proceeds held in escrow after you move out.
  2. The other option more closely resembles a traditional lease where you make monthly payments to the new homeowner who becomes your landlord.

As the seller, you may find the first option preferable because you won’t have to worry about paying for rent out of pocket. However, your buyer may push for monthly payments because they will need to cover their future mortgage expenses that begin shortly after closing.

How Long Can a Leaseback Last?

Leasebacks generally last weeks to months after closing but won’t usually extend much longer than a year in extreme cases.

In many cases, a leaseback won’t be an issue, but you should understand that demanding one may limit your pool of prospective buyers.

Should I Consider Incorporating a Leaseback?

Incorporating a leaseback into your sale contract can give you some relief but may also further complicate the transaction and create additional risk, complication and headache for you.

Moving Out of State But Need to Sell Your House?

You may also have to endure a final inspection once your lease ends and you could be liable for any property damage or issues that arise post-close.

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#3: Do You Need Sale Proceeds for Your Next Home Purchase?

We previously discussed how most people elect to sell their home in California before buying the next one because they need the sale proceeds to finance the purchase. However, the risk is that you may be rushed into a home purchase simply because you need a place to live.

To prevent this, you could consider buying your next home first but make the purchase contingent on the successful sale of your current home.

This is what real estate agents call a “home sale contingency.”

Contingency clauses are common in most home sale contracts and generally protect buyers in several different ways (e.g., appraisals, inspections, financing, etc.). The failure of the parties to comply with a contingency can be a legal reason to terminate the home sale.

As the buyer, you’re effectively stating in the agreement that you will only complete the purchase if you can sell your old home by a specific date.

The home sale contingency gives you comfort and insurance that you won’t be liable for owning two homes in the event you can’t sell the current one.

1. A Sale and Settlement Contingency Versus a Settlement Contingency

Expanding on the above, you generally have two options available to you for stating a home sale contingency in the offer.

2. Pure Settlement Contingency

The second is a pure settlement contingency, which states your current home is under a contract for sale but is awaiting close.

Important to Know: Sellers are often reluctant to accept offers contingent on another home sale because of the perceived risk that the deal will fall through. This is especially the case when you’re competing with other offers.

In these cases, having a settlement contingency will appear more valuable because you’re further along in the process of selling your current home.

What Happens When You Sell Your House in California?

If this is your first time selling a home in California or it’s been a while, you could benefit from our quick reminder of how the process works. The process can most easily be explained in three phases: before listing, getting under contract, and closing.

Steps You’ll Take Before Listing Your California House for Sale

1. Hiring a Real Estate Agent

The things you do before listing your home for sale in California will have the greatest impact on your ability to sell quickly and on favorable terms.

Of course, current market conditions will play a role but there is a lot
you can control when it comes to how you approach the listing.

Before listing, you will usually need to complete the following tasks:

Your realtor is the one who will help organize and manage the listing, the
review of offers, contract and compliance items, and other administrative parts of the closing.

Learn More: How to Sell a House Without using a Realtor

2. Choosing a Listing Price

Price your home too high and you might deter potential buyers but list it too low and you might miss on potential gains. You’ll want to consider recent comps and other motivating factors to choose a list price that will fit your needs.

3. Advertising Your House Listing

You will want to advertise your listing on a multiple listing service
(MLS) and other platforms (e.g., Zillow, Redfin, etc.) to attract buyers. Part of this will include creating a description of the property supported with professional, well-lit photos.

4. Getting Your House Under a Sale Contract

After listing the property, your next steps will be doing everything necessary to find an acceptable offer on your house and get under contract. Again, market conditions and your list price will influence how long this part of the process takes, but you could reasonably expect it to take a couple weeks or longer.

During this time, you may have scheduled showings with individual buyers throughout the week. Your real estate agent should also offer open houses on the weekend because that is when serious prospective buyers are most likely to have the time to look at homes.

Eventually, you will start receiving offers, which may present opportunities for counter offers, negotiating terms (e.g., a home sale contingency), or attempting a bidding war if you have multiple offers.

5. Completing the Closing Process

After you accept an offer, your contract will state a date when the transaction becomes final, which is known as the closing date. This is the day when you will receive the buyer’s funds from escrow, and the buyer will take possession of the property (unless you negotiated for a leaseback).

If you had a mortgage or other loan tied to the property, then sale proceeds will divert to repay those obligations first.

Between signing the sale contract and closing, you and your buyer will need to complete several important steps. Your buyer will likely want to complete an inspection of the property in addition to getting an objective appraisal.

On your end, you will have to complete disclosure schedules and make other certifications about the property’s condition.

Tax Consequences: Is the Money from the Sale of the House Considered Income?

Another important point to understand when selling your house in California is the federal tax consequences of the transaction.

Real estate is often heralded for being an asset that tends to appreciate over time. When you sell the house at a profit, you have a capital gain that the IRS considers taxable income.

Depending on the length of time you’ve owned the property, you will have a short-term capital gain (if owned for less than a year) or a long-term capital gain (if owned for a year or longer).

The IRS taxes short-term capital gains at the ordinary income tax rate (i.e., whatever your tax rate is in the year of the house sale up to a rate of 37 percent). Long-term capital gains, however, receive a slightly more favorable tax rate that maxes out at 20 percent but can be lower based on your tax bracket.

Do You Have to Pay Capital Gains If You Reinvest in Another House?

First-time sellers of a personal residence are often surprised to learn about a commonly used capital gain exclusion within the federal tax system.

The IRS allows homeowners to exclude a certain amount of the capital gain from their taxable income so long as certain conditions are met.

Taxpayers who file single can exclude up to $250,000 worth of capital gains while taxpayers who file joint returns as a married couple can exclude $500,000.

To qualify for the exclusion, you must have used the home as your primary residence for two out of the five years preceding the date of sale.

In other words, the exclusion doesn’t apply if you used the home as a vacation property, a rental, or for another commercial purpose.

If you have any questions about the tax implications of selling your home in California, we recommend consulting with your accountant, lawyer, or other tax professional.

Final Logistics to Consider When Moving Out of California

A final topic worth mentioning is the logistics of storing and transporting your property during the home sale and moving process.

The options available to you and their appeal will likely depend on the length of your move.

In some cases, you may wish to tackle the move yourself and simply rent a truck to transfer all your personal property.

However, many other options exist for longer trips such as hiring a moving company, moving pods, or other businesses that will help transport your belongings for you.

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An Easier Way to Sell Your House Fast

If the process of selling your California home sounds like a lot of work, that’s because it is. Unfortunately, no true shortcuts exist when it comes to selling your home and moving out of state.

It can be a long, tedious process that you’ll be thankful to be finished with once it’s done. Regardless, you must weigh your options and choose the route that will get you where you want to go as quickly and efficiently as possible.

At SoCal Home Buyers we’ve helped over 500+ happy sellers do exactly this. Our goal is to relieve some of that home selling stress of your shoulders with our simple 3-step “Selling Made Simple” home selling process.

In short, we’ll help you sell quickly (e.g. in as little as 7 days if needed) and help you avoid many of the headaches, hassles and costs associated with a typical real estate listing on the MLS by paying you cash for your home.

Our company provides home sellers with quick and flexible closing dates, a fair cash offers for a smooth and painless transaction.

Don’t take our word for it though, home buying companies are a great solution for anyone pressed for time or just don’t want to deal with Realtors.

Here’s what one of our happy sellers said about selling to us prior to moving to Idaho:

YouTube video

If you’d like to receive a fair cash offer on your home and sell without the hassle of Realtors, simply call one of our agents to learn more about how our services can help you in your home selling and moving journey.