SELL FIRST, THEN BUY? BUY FIRST, THEN SELL?
Like the classic Negotiation problem called the prisoner's dilemma, there are trade-offs when trying to decide if you should sell your current home before buying, or buy before selling.
The Ideal Situation
Ideally, you would sell your home and move into a new home at the same time. There would be a perfect cross over—you close the sale on your old home, walk the money over to the other office, and close on your purchase.
Except that 90% of the time, it doesn’t work that way. In most cases, the timing is off in one direction or the other. Your house sells before you’ve found a new home. Or you find the perfect new home, but haven’t sold your old house yet.
If you have to choose between these two undesirable options (and you do), which way should you go? Let’s look at the pros and cons of choosing whether you should sell first or buy first.
Your Choices (And you do have Choices)
You have decided it’s time to choose a different lifestyle and move to a larger house or to another area or closer to your kids.
You interview and select the perfect Realtor, let’s call her Debbie (but your Realtor is probably Karin or Jan, or something like that). You do all the things Debbie tells you to do to prepare your home for sale. You are excited when you see the sign go up in your yard. You’re ready for the offers to flow in over the next several days.
You call Debbi and ask if you can go look at new houses. Trying not to be a downer Debbie, she cautions you. She starts to present you with the options:
Option #1: Sell and Close Before you Buy
The first thing Debbie says is, Wait until your home sells and closes before making an offer on a new home. Allow about 60 days after closing your old home before you’re able to move into the new home.
But, you say, if we sell first, then where will we live for two months? Where would we put all our stuff? We’d have to stay in a hotel. We’d have to store our stuff. We’d be moving twice! No way. We’re not going to do that!
Option #2: Obtain a Mortgage
The next thing Debbie says is, Talk to your lender to see if you can afford two mortgages. Then you can buy one house before you sell the other. They might give you a “bridge loan” covering both mortgages temporarily. Well, you say, we can barely afford this loan. No way can we qualify for two mortgages, even if we wanted them. We don’t have much equity in this home. Nope. We have to sell before we can buy. What are we going to do!?
If your house it paid in full and you have enough equity in your home, you may try to refinance your home, BEFORE you put it on the market. You may be able to pay for your new home. If that is not feasible you may obtain a pre-approval letter and buy your new home first.
Option #3: Sell at a lower Price
Ok, says Debbie. How about if you Take your time, find the right home, make an offer, then put your home on the market at a rock bottom price. That way it can close quickly enough for you to close on the purchase of the house you made an offer on. By selling at a rock bottom price, you can get the best offer possible, maybe even cash, if your price is low enough.
Forget that, you say. We need the most money we can get out of this. That would happen in a normal market. In today's market you may fetch multiple offers and sell high.
Option #4: Make an Offer subject to the sale of your current Home
Then Debbie suggests: Make an offer on your new home with a special clause written in called “subject to selling your current home.” That would mean the sellers of the new home that you want would be happy to wait around while you find a buyer for your home, then close simultaneously.
That sounds great! You say.
But then Debbie puts you in the seller’s shoes. She asks you if you would accept an offer with a “subject to selling another home” clause written into it. She asks, what if the buyer takes six months to sell his home? Or what if the buyer gets less money than expected for his home and has to back out of buying your home?
Debbie points out that if a buyer makes an offer on your house subject to the sale of his house, you are shouldering his risk.
Once you accept his offer, you take your house off the market. Now you have to wait for him to get an offer on his house. You wait. And wait. A couple of weeks later he gets an offer. HALLELUJAH. So you wait a while longer, sure that it’s just a short time now until he closes and can close on your house. But then something goes awry with his buyer’s financing and the purchase falls apart. You’ve wasted weeks and weeks, waiting for a sale that now has to start over from scratch.
Debbie wisely says nothing for a moment . And of course you realize that if you would not accept such an offer from someone, what are the chances that someone else would accept such an offer from you? Especially in a seller’s market.
Option #5: Sell your house with a post closing occupancy
Debbie then says she has the best idea yet. Sell your house with and post closing occupancy agreement. Some buyers don't need the house right away and are happy to rent it back to you for the time being. get an acceptable offer, and Debbie negotiates the contract so you can stay in your house after closing renting back after closing for 1 30, 45 or even 60 days.
Well, you say. That would mean paying rent on our own house. It might only be for a short time. And since I can’t get a loan, it might be my only option. Do you have any more ideas?
Option #6: Take your chances
Debbie makes her final point. Take your chances and juggle time frames. When you get an offer on your home, your buyer has about 10 to 15 days to do inspections. If you have a cash buyer once the inspection is complete and he is satisfied with your house, you can move on and make and offer on your new home. If you have a buyer who obtains financing it can be a nailbiter, but in reality many transaction involve financing. Debbie may suggest that the buyer is getting a verified approval letter .