Link to orignal article written by Lee huffman here.
Buying or selling a house can be a monumental task. Doing both at the same time takes the complexity to a whole new level.
If you’re buying and selling a house at the same time, you’ll need to navigate a hot seller’s market as both the seller and buyer. You’ll benefit from a seller’s market on the one hand, but could also face challenges as a buyer.
With fewer homes for sale than there are buyers, there is greater urgency and competition in the market. However, there are signs the housing market is beginning to cool down.
There’s no way to make the process of buying or selling a home totally predictable, but thinking through your preferred strategy will help you navigate the ups and downs a little bit more easily.
While you can’t control the market, you can plan ahead to minimize the impact of any potential challenges that may arise.
Here are some expert tips to address some of the questions that could arise when buying and selling your home at the same time.
Advice for Buying and Selling at the Same Time
When buying a new home and selling an old one at the same time, one transaction always goes first. Sometimes one happens first due to personal preference, while other times, it’s a matter of finding the perfect home before you’re ready to sell. With such a hot market, each of these moves should be considered carefully and a qualified real estate agent can help strategize based on local market conditions.
No matter which path you choose, these expert tips can help you have a successful transaction and minimize the stress of buying and selling at the same time.
Buying a House Before Selling
While some buyers are able to buy a new home without waiting to sell their current home, many don’t have that luxury.
For people who need the proceeds from one sale to move forward with an offer on a new house, that’s where an offer contingency comes in. It essentially means the homebuyer has a set amount of time to sell their current home to help finance the new home purchase. While “contingent offers are not as strong,” there are still ways you can help yourself, says Shelby Osborne, CEO of Five Pillars Team at eXp Realty in Charlotte, North Carolina.
For homebuyers who plan on making a contingent offer, consider the following:
- Request an extended closing. While most buyers want to move into their new home right away, you still need time to sell yours. As part of your purchase offer, request an extended closing of 60 days to have extra time to find a buyer.
- Have your current home ready to go on the market. By preparing your home for listing ahead of time (fresh paint on the walls, decluttered, and spacious staging), you’ll be ready to publish your listing and attract a buyer as soon as you get your new home under contract. Osborne recommends “talking to your agent about how to prepare your home to sell.”
- Make an offer that is contingent on selling your current home. Having this contingency in your purchase contract allows you the option to back out of the purchase if you are unable to sell your home. This contingency allows you to cancel the purchase without any legal consequences and can save you from losing your deposit.
- Make an offer with a home inspection or appraisal contingency. Contingencies are clauses meant to protect the buyer and seller to formally signal their interest assuming certain conditions can be met.
- Using a HELOC to fund your down payment. Homeowners with an established HELOC can use their credit lines to fund the down payment on a new home. When the home sells, the HELOC balance is paid off from the sale proceeds. Just make sure that you can afford the extra monthly bill that comes with borrowing this money.
Pros of Buying First
- Ability to take your time finding the right home
- Guarantees that you have a new home to move into when your old home sells
- Only have to pay for moving expenses once
Cons of Buying First
- May need to make two mortgage payments at once if your old home doesn’t sell
- Harder to qualify for the new loan while still making payments on the old mortgage
- Financial strain may lead you to accept a lower offer on your house
Selling a House Before Buying
In some cases, it will make sense to sell your home before you have your next move in mind. “Some sellers are selling and moving into a rental property or leasing back from the buyer” to lock in profits and cash out their equity before deciding on their next move, says David Lee, owner of the David Lee Group with Keller Williams in Yorba Linda, California. Some sellers are waiting for lower prices before buying again. Others are considering moving to a lower-cost area.
If you’re planning to sell your house before buying a new one, keep these tips in mind:
- Request a lease-back to provide extra time. A lease-back allows sellers to “rent” their home for up to 60 days after selling it. Lee says that a lease-back “provides sellers extra time to locate a property or if something delays the purchase.”
- Place personal items in a storage unit. Sellers should declutter their homes before taking pictures and listing their property. Storage units can hold additional personal items if they need to live someplace temporarily until finding a new home.
- Buyers without contingencies make stronger offers. If you don’t have to sell your home first when making an offer on a new house, a seller will consider your offer stronger than others. When you’ve sold your home first, you know exactly how much your down payment will be, which can also strengthen your offer.
Pros of Selling First
- Prevents two mortgage payments while waiting for your old home to sell
- Easier to qualify for the new home mortgage without the existing mortgage payment on your credit report
Cons of Selling First
- Could make you stuck without a home for an extended period of time
- Additional storage and moving costs for all of your items
- Home values may continue to increase before you can get an offer accepted
- Interest rates may rise before locking in a rate
Why Knowing Your Market Matters
Knowing what type of market you’re in can help you set the right expectations before you shop for a home or list your property for sale. Here are some characteristics and trends to help you understand what type of a market you’re in, and what it means for you:
Characteristics of a Buyer’s Market
- Buyer is more likely to negotiate on price
- Sellers are generally more willing to discount their sales price, approve requested repairs, and accept other buyer-friendly terms
- Homes are sitting on the market longer
- You will see drops in list prices
- There isn’t a noticeable rush of people lining up to check out every Saturday morning open house
Characteristics of a Seller’s Market
- The seller might ignore bids below the list price
- Buyers will need a stronger purchase price and a larger down payment to make their offer more competitive
- Buyers might get creative with their offers, such as by sharing a personalized letter to make an emotional appeal to the sellers
- Buyers more likely to overbid or stretch beyond their homebuying budget
- Buyers might overpay for a home that needs considerable work or upgrades
- Buyer are more likely to remove contingencies
Be aware that removing contingencies reduces the opportunity to back out of the transaction if something bad happens. For instance, removing a home inspection contingency could mean that you don’t learn about expensive repairs until after you’ve bought the property.