Buy First or Sell First
Always sell before you buy. It may sound like common sense, but if you're
like many sellers, you probably started attending open houses before you even
thought about what it would take to sell your current home.
Why Sell First?
Most experts agree that you should close the sale of your home before
committing to another piece of property. Doing this virtually eliminates the
financial risk: You'll know how much money you have for your down payment,
and you won't have to arrange for interim financing.
If you can negotiate a sale-leaseback, you can rent your home from the
buyer for a month or two while you look for your next house. If you can't
arrange to rent your current house, you will probably have to rent a home
temporarily- but it's usually cheaper to pay rent plus moving costs than to pay
two mortgages plus taxes and insurance for several months. It is almost always
better to sell your current home first, and your lender may require it if you
can't qualify for interim financing. Start managing the two transactions in
Selling Before You Buy
If you've started looking for another house and your own home isn't already
on the market, stop shopping and start preparing your house for sale.
Start with these steps:
- Know your home's value. Get an estimate of your home's value online,
and back it up with three comparative market analyses from three prospective
listing agents (or an appraisal if you're selling the house yourself) to
determine your home's approximate value.
- Get pre-approved. Estimate the minimum amount of cash you can expect
from the sale and get pre-approved for a loan.
- Get an inspection. Order a pre-sale inspection of your home and make
the necessary repairs and decorating changes.
- Launch your sale. Now you can start shopping in earnest for your next
- Mind the timing. If you haven't yet found your new home by the time you
accept an offer, negotiate a long escrow or a sale-leaseback. If the
buyer wants to close quickly, arrange for temporary housing. Avoid making an
offer on a new home until most of your purchase contract's contingencies have
- Close your sale. Deposit the proceeds while you look for your next house.
Buying Before You Sell
If circumstances have placed you in the position of buying before you sell,
managing the two transactions becomes more complicated. If you've already made
an offer on a new home:
- Structure your offer. Negotiate to include a long escrow, or make the
purchase contingent on the sale of your current home. Such a
contingency is a seller's nightmare, but in a slow market the seller may
be willing to accept the offer. More important, it gives you an escape if your
house doesn't sell. You may want to consult a real estate attorney on the exact
wording of your contract.
- Start preparing your house for sale. Consider pricing carefully. You may
need to list at a lower price to speed your sale. You also may have to offer
incentives such as a home warranty.
- Find a lender. Secure interim financing so that you may purchase your next
house while your current house is for sale. So-called bridge loans are made
against the equity in your current house and cost more than traditional home
- Focus on selling your house. Help the agent any way you can, and maintain
the home's appearance. If you get an offer you want to accept, verify the
buyer's creditworthiness, avoid any contingencies that could delay closing, and
try to schedule a closing date before the closing of your other purchase
contract to avoid interim financing.
- Follow through with your purchase. If you have not sold your house, and your
purchase contract on your next house does not have a contingency that allows
you to back out, you are still committed to the purchase. Consult with your
agent and a real estate attorney. If you proceed with the purchase, adjust your
budget and consider more drastic action to sell your current home.
- Close. Close on both sales, or close on your home purchase only. If the
latter, continue your sales efforts until the market slows. Consider taking
your home off the market and renting it out until the next shopping season.