Whether you should buy your next home before you sell the one you’re in, or sell and then buy, is one of the conundrums most sellers have to work through. No one wants to get stuck with two houses and two mortgages, but no one wants to find themselves homeless either.
This is something I’m wrestling with now that my “empty nest” is bigger than I need. I am thinking of buying a condo, but should I buy first or sell?
For what it’s worth, I feel more comfortable knowing I have a home. A properly presented, aggressively priced home will usually sell even in a slow market, but finding a dream home, particularly if you are as picky as I am, can be difficult. I’d hate to sell my house and have to rent while I look around for another–there’s enough stress associated with one move, much less two.
So I’m looking for my next home now. Once I find it, I plan to make an offer that gives me enough of a time frame (60-90 days) to sell my home with little or no bridge financing.(Bridge financing means the money borrowed to close a transaction until the funds from the first sale come in.)
If I can’t sell a home within 60-90 days, it’s not the house that’s the problem, it’s the price, and I’ll be a lot more focussed on price if I know I have to sell.
Now, not everyone wants to be in that situation. Some people think that if buyers know you have to sell, they’ll lowball offers. But generally speaking, I think homes should be priced and sold for their fair market value. It’s up to the realtor to advise the owner what is reasonable and and in keeping with what other similar homes are going for in the same area.
On the other hand, I’ve had clients who preferred to know their house was sold before they even started looking — that gave them the security they needed. Luckily, I’ve been able to find them the home of their dreams in that short period. And equally luckily, they were the kinds of people who were able to make up their mind quickly, but were also willing to rent if they couldn’t find what they wanted.
But deals can collapse, and there’s always the risk of being stuck with two homes no matter what plans you make if you buy before you sell.
I had a client once, for example, whose “conditionally sold” house deal fell apart when the first time home buyers spooked after a home inspection found some minor deficiencies. Her purchase of her new home was about to close. Talk about stressful!
We were lucky: despite the fact that it was the dead of winter, we priced the home aggressively and sold it a few days later for a great price, a little higher in fact, than the offer that fell through.
Remember also, that even if you’ve sold your house to buy a brand new one, and you are relying on the date provided by the builder for your closing, the construction of new homes and condos can be delayed.
Where will you go if that happens? Make sure you have a contingency plan up front–do you have family you can stay with, or a place to rent? Not too many of us can be afford to be stuck in a hotel for more than a few days.
In a slow market, sometimes buyers can persuade sellers to accept an offer conditional on the sale of the buyer’s home. This is great for the buyer–no obligation until they sell their home. As long as the seller has the right to entertain other offers, and the buyer has the right of first refusal, that’s not a bad arrangement for the seller either. (This means that the seller can continue to show their home, and if they get another offer, the first buyer has a period of time, usually 24 hours, to either firm up the deal or back out.)
Sellers often don’t like doing this, but if their home has been on the market for more than a few months, they may be open to persuasion.
For example, I had clients last year who found their dream home but didn’t want to make an offer unless they first sold their home.
We were able to negotiate a sale with the sellers by persuading them that we would list the buyers’ home for sale within a very short time period, price it aggressively, invite offers within two weeks, and keep them informed. Their agent actually helped me by circulating the listing to her buyers too — it was in everyone’s interest to get both houses sold. And we did.
(In fact, because the home was priced so aggressively, we got multiple offers and sold for well over asking.)
But in a seller’s market, that kind of condition can be difficult to negotiate because no seller wants to tie up their property when homes are moving quickly.
Frankly, I think it’s when the market is hot that the issue of whether to sell first or buy is a tricky one. Your home may sell quickly, but you may also find yourself losing out to multiple offers on the properties that you’re interested in. That may be the one time when you want to buy first, knowing that the odds are that your own home will sell if it’s well-priced for the market.
Talk to your realtor about which scenario fits best with your comfort zone. Some people have a higher tolerance for risk than others. And make sure you ‘ve spoken to your bank or mortgage broker about financing so that you know what you can afford.