Selling a House First and Then Buying Another

In this article:

• Benefits of selling your current house to buy another
• Is it best to sell first and buy a house later?
• How to calculate the equity in your home
• Tips for selling and buying a house
• How to sell your house then buy a new one

Considering selling your house and using the profits to buy a new home? If you have the opportunity to sell first and buy later, you can eliminate several complications sellers face when buying and selling simultaneously.

However, selling before buying takes ample preparation, plenty of patience and some flexibility. Here’s what it takes to succeed.

Benefits of selling your current house to buy another

There are a lot of pros to completing your home sale before you purchase again, especially related to finances and timing.

Retain negotiating power for best sales price

If you buy first, the pressure to sell quickly is high because you’ll be responsible for paying for two homes — the one you just bought and the one you still own. This added financial stress might make you tempted to accept the first offer just to keep things moving. But if you sell first, you can do as much negotiating with potential buyers as it takes to get an offer you're satisfied with.

Less pressure

When your sale isn't directly tied to another purchase, you don't have the same timeline stress. Of course, you don't want your listing to go stale, but you can take your time in completing repairs or staging, testing the market and considering sales strategies.

Avoid two mortgages

You hope your home will sell quickly, but what if you've already purchased a new home and the home you're selling sits on the market for two, three or even four months? Selling before buying ensures that you won't be stuck paying two mortgages at once.

Collect full equity for future purchase

Selling first frees up your equity (the profit you’ll make on the sale after paying closing costs and paying off what’s left of your mortgage) so it's available as a down payment on your new home, which may put higher-priced homes within reach.

Avoid sale contingency

Sellers who are trying to buy and sell concurrently often submit contingent offers, where they offer to buy a home based on selling their current home first. While this can be successful in some markets, if you're attempting to buy in a sellers market, a contingent offer is much less desirable. By selling first, you present stronger offers, and you'll be more likely to get the house you want.

Potential to pay all cash

If you pocket enough profit on your home sale to fully fund your new home purchase, you’ll avoid taking out an expensive mortgage and your all-cash offer may be very appealing to sellers.

Is it best to sell first and buy a house later?

Generally, selling first is a good idea if you're in a sellers market or if you can't afford to buy your new home without accessing the equity in your current home. Here's how to figure out if selling first is the right strategy for you.

Research the local market

First, you'll want to determine if you live in a sellers or a buyers market. Most people buy and sell in the same area, but if you'll be moving into a new market, research both the market where you're selling and the one where you're buying. If you'll be buying in an area you're unfamiliar with, working with an experienced real estate agent can be especially helpful. Ideally, you'll sell in a sellers market and buy in a buyers market, but it’s more common that people move to a nearby location, instead of making a long-distance move where market trends vary considerably.

Sellers market conditions

A sellers market can often occur when there are more buyers than there are homes available, giving sellers have the upper hand. Here are some key indicators of a sellers market:

• Homes are on the market for a shorter time
• There are fewer price cuts
• Homes sell very close to or even above their asking price

Selling in a sellers market: In a sellers market, your home is likely to sell quickly — an ideal situation for sellers.

Buying in a sellers market: When buying in a sellers market, be prepared for some competition.

Buyers market conditions

In a buyers market, a surplus of homes for sale means that buyers have the advantage. In buyers markets, buyers can more easily negotiate for lower prices, repairs and credits. Consider these key indicators:

• Homes stay on the market longer
• More homes have at least one price cut
• Homes sell for less, relative to their asking price

Selling in a buyers market: Expect it to take longer to sell your home than average. When your selling time frame is unclear, it may make even more sense to sell first and limit the amount of time you'll be carrying two mortgages.

Buying in a buyers market: An ideal situation — when you buy in a buyers market you should have more time to make a decision and more bargaining power on price.

How to calculate the equity in your home

You can calculate your buying power based on the current sale price of your home. If you're just getting started in the selling process, your real estate agent can help you find the right listing price and walk you through the costs associated with selling so you'll know how much money you'll likely end up with.

Here’s a simplified example to help you calculate your eventual gains:

Let’s say you’ve decided on a $220,000 asking price for your home. Expect to spend 5% to 6% on agent commissions ($13,200, on the high end). You can also expect to spend an additional 2% to 4% on seller fees, which include things like escrow, title insurance and real estate attorney services ($8,800, on the high end).

That leaves you with $198,000. If you don’t have a mortgage on the home, that will be your net profit. But let’s say you owe $100,000 on the home. You’ll need to pay off the balance on your mortgage, leaving you with $98,000 to put toward your new home.

Tips for selling and buying a house

When you're selling in order to buy another home, timing is often important. Here are some strategic ways to speed up the process.

Take all-cash offers seriously

There's a reason sellers love cash offers. The odds of the offer falling through for financial reasons are lower, and offers from cash buyers often close more quickly.

Consider a lease-back

In a lease-back, you sell your home to the new owner, but the new owner agrees to lease it back to you for a specified period of time, which can allow you to avoid temporary housing costs. This arrangement has to be negotiated as part of the offer process, and the buyer has to be willing to accommodate your request. You're more likely to find a buyer who's willing to agree in a sellers market, when buyers have to be more flexible to get into the house they want.

How to sell your house and then buy a new one

Once you've decided that selling a house and buying a new one is the way you want to proceed, you still have a few more hurdles to clear. Here's how to navigate the logistics.

Start your search early

There's no harm in checking out potential new homes while you're waiting for your sale to close. Use that under-contract time to explore new neighborhoods, research school ratings, check out homes in your price range and refine your search criteria. That way, once your home has sold, you'll be ready to hit the ground running.

If you're selling in a buyers market, you can take your time with the research and touring process. But if you're selling in a sellers market, your home may sell quickly. Start researching early so you'll be prepared.

Find temporary housing

Plan for three months in temporary housing, which will give you six weeks to find a home you love and another six weeks to close. If you're buying in a sellers market, it could take longer, so you may need to adjust your timeline accordingly.

Short-term leases can be hard to come by, so don’t be too picky. After all, it's only a temporary move, so the finishes don't need to be perfect. And going with a more affordable rental can help you save money for your home purchase. Since you won’t be in your temporary housing for long, consider cutting costs by renting a smaller place and putting most of your furniture and belongings in storage.

If you'll be buying in a new neighborhood, consider renting in that same area so you can get a feel for what it will be like to live there.

Landlords often charge more for short-term or month-to-month leases, as they'll have to fill your vacancy again in just a few months. If you're having a hard time finding temporary housing, look for a sublet, a vacation-type property or a corporate rental, or consider bunking with family or friends for a short time.

Calculate moving and storage costs

You'll be moving twice instead of once — from your old home to temporary housing, and from temporary housing to your new home, so budget accordingly. If you are moving into a smaller place for your temporary move, there’s no need to take all your belongings with you. Consider renting a portable storage unit. Many companies will deliver an empty container to your home, and once you fill it up, they’ll store it off-site and deliver it back to you when you’re ready. It can be a cost-effective way to limit how much you’re moving.