Buying and Selling at the Same Time
And you thought buying or selling a home was scary. Either one can be, of course, but there’s nothing like doing both at once to foster a flurry of “what ifs.” What if I buy a new house, but my old one doesn’t sell? What if I sell my old house, but can’t find a new one? And what if I try to do both at once and end up going completely crazy in the process?
Don’t worry, you won’t, as long as you take the time to think things through. Depending on your particular situation, it may make more sense to buy first, then sell — or just the opposite. Either way, here are some of the factors to consider:
Buy First, Then Sell
- Can search for new home without pressure
- No need to find interim housing
- Risk of double mortgage payments
- Equity from current home unknown
Sell First, Then Buy
- Equity is immediately available
- No double mortgage payments
- Risk of having to find interim housing
- Pressure to buy can lead to rash decisions
Clean It Up
Clearly, buying and selling concurrently comes with its own brand of stress, but with a little pre-planning you can keep it under control. Simply put, you should get as much done to your old house before you even start looking for your new one. At a minimum:
- Get rid of stuff. You don’t want to be hauling junk to the dump while the clock is ticking.
- Fix what you can. If necessary, hire an inspector to determine what needs doing and get it done. Quibbling with potential buyers over who’s going to pay for what is counter-productive.
- Disclose what you don’t — fix, that is. If you don’t want to take on a major repair, be sure to disclose the problem to the buyer. It may be better to accept a lower offer than to have the deal fall apart.
Tools of the Trade
Regardless of the route you choose, you can ease the process in others ways, too. One is through a bridge loan, a short-term loan that “bridges” the gap between buying your new house and selling your current one. (Watch out, though: Bridge loans often carry high fees and interest rates.) Other options include taking out a home equity loan or borrowing against a 401(k).
You can also structure your deals to include contingency clauses, in which you agree to sell your current home contingent on purchasing your new one and/or agree to buy your new home contingent on selling your old one. Just be aware that most sellers prefer contingency-free offers: If your offer is contingent on selling your current home and a competing offer has no such constraints, many sellers will go for the free-and-clear sale.
The Reality of Rent-backs
If you’ve sold your current home but can’t move into your new one (or haven’t even found it yet), you may be able to negotiate a rent-back with the buyer. In a nutshell, that means you can stay in “your” home as a tenant who pays rent to the new owners. If the buyer is amenable, you’ll not only have the proceeds from the sale, but also more time to plan your next step.
The problem, of course, is that the buyer calls the shots. They’ll probably want you to cover their mortgage payment and other costs, which, assuming your house has appreciated, are probably quite a bit higher than you’re used to paying. Add in the utilities, renter’s insurance, and other expenses, and it may make more sense to find a rental apartment — or redouble your efforts to find your new home.
Real Life Example
Who: Reese and Cameron, after nine years in a 90-year-old Victorian
The decision: They had a lot of possessions, a laundry list of repairs to consider, and not a lot of time or available cash. They also had a decision to make: Should they sell their old home first and use the proceeds to buy their new home, or should they buy their new home first and hope the old one sold in a timely manner?
The agents: Fortunately, they also had a real estate agent they trusted, a woman who helped them find their new house and put them in touch with another agent who was able to list their old home.
The game plan: They developed a plan to put their current home on the market the day after they made an offer on a new one, giving them just under a month to complete both transactions.
The quote: “We found the house we wanted, and the clock starting ticking,” says Reese. “That’s when the stress really kicked in.”
The concession: With the clock ticking, Reese and Cameron knew they had to find a buyer for their old house in a hurry. (It didn’t help matters when they lost a week when the first buyer bailed out at the eleventh hour.) Fortunately, their agent found a buyer who agreed to a three-week closing period in exchange for a slight concession on the sales price.
The closing: They closed on their old house on a Friday, closed on their new one on Saturday, and breathed a huge sigh of relief. “It was nice getting that big check,” says Cameron, “even if we didn’t get to keep it very long.”
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