Sell First or Buy First?
There’s a lot to balance when buying and selling a home at the same time. And, there are plenty of things to take into consideration. The most important piece of the puzzle will be to find out if you’ll need to sell your current home in order to get a mortgage for your new home. Many homeowners won’t qualify for their new loan until their current home is sold. This often means that the sale of the current home and the purchase of the new home have to happen on the same day.
Many who are looking for a new home and currently own a home begin the process by searching for their next home before listing the current home for sale. This approach often leads to weeks or months of searching for the right home only to find out that they’re not ready to make a serious offer when that perfect home goes on the market. Few sellers will consider an offer that’s contingent on the sale of a home that isn’t on the market yet. They simply don’t know if that home will sell and, if it doesn’t, the sellers will have taken their home off the market and missed other opportunities to sell.
The best, and easiest, option is to buy the new home before selling your current home. When approached this way, there is less pressure to get the current home sold and to find a new home in a short timeline. However, having to manage two mortgage payments for an extended period can certainly be an issue and if the old home doesn’t sell quickly or for the amount you had hoped for there can be other financial consequences. It’s often the case that the getting a mortgage for the new home requires that the current home is sold. To start, you’ll need to find out if this is the case.
7 Steps to Buying & Selling a Home at the Same Time
The first priority when buying and selling a home at the same time will be to find out whether or not the purchase of the new home will be contingent on the sale of the current home. If not, it will make the process much easier. The first three steps will determine if the current home needs to be sold. Step 4-5 will help make sure that you can find the home that you want to buy. Steps 6-8 provide a blueprint for the sale and purchase when the current home needs to be sold first.
Get Your Mortgage Payoff Amount
The first step is to get your mortgage payoff amount from your lender. Usually, this is as easy as calling an 800 number, going onto your lender’s website, or checking your statement. You’ll need to know the amount to estimate your proceeds after the sale of the home.
Get an Estimate of the Value of Your Current Home
An experienced local Realtor will be able to show you comparable home sales in your neighborhood and provide an estimate of the value of your home. They should also be able to share information to show you whether it’s a buyer’s market, seller’s market, or somewhere in between for homes like yours in your neighborhood and approximately how long homes take to sell.
When discussing the value of your home find out how close to the asking price most homes are selling. The asking price of a home has an incredibly big impact on how quickly a home will sell and many would-be sellers price their homes too high expecting that they should have some negotiation room.
Unfortunately, the result of having too much room for negotiation is that buyers don’t schedule showings or make offers so there’s no one to negotiate with.It’s also easy to accidentally overprice a home. In my market, more than half of the homes for sale will take a price reduction before being sold. Since every home is different, what seems like a $350,000 home when compared to others may turn out to be a $325,000 home.
My advice is to consider not only the value provided by your agent but also consider the “What If” scenario of selling for 10% less than the estimated value. In addition to the value estimate being too high, there can also be otherwise unforeseen expenses including buyers that need you to pay a portion of their closing costs and surprise repair issues that need to be addressed.
Get an Estimate of Your Closing Costs
In addition to getting an estimate of the value of your home, a Realtor will also be able to provide you with an estimate of your closing costs. It’s best to get two estimates . . . one estimate for the anticipated value and one estimate for a lower sales price, just in case. Personally, I like to factor in some amount into these estimates for unknown costs that may or may not come up after the buyer performs their inspections.
Better to be prepared than to just hope that the inspection is perfect (it won’t be).Be sure to factor the mortgage payoff amount into the estimates. This will provide you with an estimate of your proceeds for the sale.
Contact a Reputable Local Lender
Once you have estimates of the value of your home, your mortgage payoff amount, and estimates of your proceeds from the sale it will be time to contact a lender. The lender will look at all of this information, as well as other aspects of your financial situation, to help you determine your price range for your new home and whether or not your current home will need to be sold before purchasing the next home.
To make an accurate determination, it’s best if the lender does a full pre-approval where they will check your credit and require documentation including the last 2-3 years of tax returns and W-2’s, recent paystubs, and recent bank statements. While it may seem like a lot to go through when you may still be making the decision of whether or not to sell, the last thing that you want will be to have your current home sold only to find out that there will be unexpected issues with getting a loan. Self-employment, alimony, recent job changes, and unknown dings on a credit report can all cause issues that can lead to delays in settlement or a loan falling through.
Some extra time in the beginning can save time and money and there’s no commitment to getting the loan until you have a purchase contract on a home.
Assess the Market in Your Target Neighborhood
Now that you’ve found out your purchasing power and determined your budget for your next home, you’ll have the information necessary to determine if you’ll be able to find the home you want to buy in your preferred areas. This is a critical step as some seller/buyers end up selling their home only to find out that what they expected to get isn’t available where they want to live.
If you’re moving nearby, the same agent who’s helping to sell your home may also be able to help with the purchase of your new home. If you’re moving far away, or even outside of the area that your agent knows, you may end up working with another agent. Either way, you’ll want to find out about the market in your target area. The best way that I’ve found is to get the listings of all of the homes sold in the last 6-12 months in your price range and preferred areas.
By going through these sold homes you’ll be able to use the past to predict the future. If you’re looking for a 4 bedroom home with parking, but only two sold in your price range in the last 6 months, it’s a good bet that there will only be a couple on the market in the next 6 months. This will be an early indication that you may need to adjust your price range, basic criteria for the home, or the area. It’s not perfect, but it’s a great way to assess the market.
Looking at currently active listings can also help, but we won’t know if they will sell and for how much so they aren’t a great indication of home values. Additionally, the homes that are currently on the market may no longer be on the market by the time you’re ready to list and have your home sold.
Put Your Home on the Market & Get it Under Contract
Imagine listing your home for sale and getting an offer that’s contingent on the sale of a home that isn’t on the market yet. The home sale contingency states that if your buyer’s home doesn’t sell, they don’t have to buy your home and they get their deposit money back. As the seller, you’ve never seen their home and have no idea if there will be interest in it or if they can sell it for the necessary amount. This would be an incredibly weak offer.
Would you want to take your home off the market in hopes that their home sells? Probably not. Most agents would advise that their clients keep their home on the market except, maybe, in some unusual circumstance or if they didn’t have experience with this type of situation.
If you’ll need to sell your home first, you can make a far better offer if your home is on the market. But, a home that’s on the market doesn’t necessarily mean that it will sell, but it may be an option to reduce the asking price to a point where it will sell. Better than just having your home on the market, would be to have it under contract with a buyer. Ideally, the buyer would have already performed their home inspections and any issues have been negotiated and settled since most home sales fall through during the inspection period.
After inspections have been settled, the typical outstanding items are the title search, appraisal, municipal inspections (where applicable), and mortgage underwriting. The more of these that have been completed, the stronger the offer will be because there are fewer and fewer issues that can cause the home sale to fall through.
As far as timing goes, it’s best to put your home on the market within 60-90 days of when you’d like to move. Most buyers will expect to be able to be in their new home within that time period. Few buyers who are ready to make an offer are looking at homes with the intention of being in their new home in 4-6 months.
Find and Purchase Your New Home
Once you have an offer on your home, it’s time to get serious about your home search. At this point you’ll want an up to date list of all of the homes for sale that meet your criteria and are within your budget and in your target areas. In hot markets, some of these will be off the market by the time you’re ready to make an offer but it’s a good idea to make sure you can find a place to live.
One challenge that you may have to face is that it can be difficult to find a home on short notice. As a buyer, this won’t give you much leverage in negotiations, especially if you’re buying in a seller’s market. There also may be limited inventory available to choose from so you may have to make some compromises on the home that you buy. These are both good reasons to try to finance the purchase of your new home without having to sell your current home, if your lender will allow it.
It will be a good idea to find out if your buyer has flexibility with the settlement date. The same goes for the seller of the home that you’re buying. If both the sale and purchase have to happen on the same day it’s best if all parties have some flexibility in case there are unanticipated delays.
Do you have questions, tips, or insights on buying and selling a home at the same time? Please comment below.
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