BUY FIRST OR SELL
While selling or buying a home can be stressful, doing both
at the same time can become almost overwhelming. Although a simultaneous sale
and purchase can occur, it is more likely that a choice will have to be made
regarding buying or selling first. Let’s look at both options.
– This is often the first option considered as it is seen as a way to make
certain that a family will have a place to transition to upon the sale of their
current home and keep them from euphemistically “being on the street or
homeless” or having to temporarily rent or move twice. On the other hand,
buying first may allow one to take all the time necessary to find the perfect
Finances often determine if this is a viable option. Unless
one has cash resources, from a lending perspective, buying before selling could
result in having two mortgages. In turn, the question will be the ability to
qualify with the two mortgage payments. There is also the question of acquiring
the necessary down payment for the new purchase in the absence of a sale. In
the absence of cash for the down payment, two possible finance options are
Equity loan on current home – When there is
sufficient equity in the existing home, an equity line loan for the needed down
payment for the new purchase might be available? Remember, there will be the
additional payment for the new equity loan which will be calculated in one’s
qualifying ratios when seeking a purchase mortgage – in other words, one will
be qualifying for three mortgages, the current existing loan, the equity loan
and the new purchase loan.
A bridge or gap loan for the necessary down
payment – This is similar to an equity line loan and the result is the same wherein
one must usually qualify for all of the borrowed funds when acquiring the new
Some of the additional issues with buying first include:
Buying first usually involves purchasing with a
contingency to sell one’s current residence. If the housing market is fairly
brisk, most sellers may be reluctant to accept a contingency offer in which
their home is off the market waiting for you to sell your home. A contingency
offer will usually prohibit the buyer’s ability to negotiate much else with the
seller, including the price of the home.
A seller MAY accept a contingency offer with a “a 24 or 48 hour first right of refusal”. This means that
the seller intends to continue to market their home for sale and should they
receive another acceptable offer, the contingent buyer will be provided an
opportunity to release their contingency regarding their home sale or cancel
Most potential buyers will be unable to remove
the home sale contingency resulting in the loss of the potential purchase and
having to decide if they wish to go through the same process again.
In the meantime, their home is now probably on
the market for sale – is it best to continue with the marketing or is it best
to take their home off the market?
There is another aspect of the contingency sale that is
often overlooked by both buyer and seller. The seller who accepts the
contingency sale typically accepts with the idea that they will continue to
keep their home on the market for sale. Unless the home is unique, special or
one of a kind, the acceptance of the contingency sale effectively takes the
property off the market. Think about it – if I am a real estate licensee I want
to show property that I know I can sell to my prospective buyer. I could
conceivably have a buyer become very excited about purchasing the home already
purchased on contingency, only to find the contingency removed and my buyer
disappointed. Preferring not to take that chance, I am likely to show the
contingency property only as a last resort upon finding nothing else that
interests my buyer. This fact, if explained to sellers, usually persuades them
to not accept a contingency offer.
– Most real estate licensees suggest this is the better course of action. This
option usually requires arranging an interim housing plan assuming that a sale
does occur prior to having purchased a replacement family home in an effort to
alleviate the accompanying anxiety regarding “what if we don’t find an
acceptable home to purchase or “find ourselves homeless”? Depending upon the
new buyer’s need for possession, a solution might be to negotiate a 60 to 90
day “rent back” arrangement. Acquire
guidance regarding issues that can accompany a rent back such as having a
binding agreement, adequate insurance coverage, etc.
Selling first provides the seller the advantage of being
able to take their time in accepting offers rather than having to accept a sale
in order to meet a contingency requirement. One will also know for sure the
amount of financial resources available for the expected new home purchase.
Other considerations include:
A would be seller/purchaser is urged, prior to
offering their home for sale, to determine that the present home inventory
provides a sufficient number of acceptable, affordably priced home purchases
that would satisfy the family’s needs. The following should also be considered:
Determine one’s ability to qualify for the
purchase of a replacement home. Do not, in this process, over anticipate the
sale proceeds that will be available in a purchase.
Make the necessary improvements and/or repairs
in preparation for a sale.
Acquire appropriate information allowing the
home to be priced for a reasonably quick sale.
The decision to sell or buy first is never easy. You may be well
served by consulting real estate and mortgage professionals for guidance.