Buy or Sell First?
Pros and Cons Each Way!
First of all, we don't live in a perfect world. (Well, we do actually, but that's a conversation for another time after you've read my book. For more details, click here.) Sometimes, though, situations are complicated and a risk must be taken if you ever want to reach a goal. Actually, the biggest risk in life is ...
Have you ever found yourself having to choose whether to buy first or sell first? Maybe the homeowner of your dream home refused to accept a conditional offer? If you'd like to share your story, ask a question or compare notes with fellow guests,click here.
Otherwise, I invite you to read on.
Buy or sell first? Many homeowners choose to buy first because they consider that route to be the safest way of trading houses. They search for their next home which, depending on its uniqueness, could take days, months or even years. And when they finally find it, they submit an offer conditional upon the sale of their present home.
They then proceed to list their existing property with an agent, sell it unconditionally and finally remove the condition from the purchase agreement of the new place.
After investing tons of resources searching for a home for your family, you may be met by frustration - your conditional offer is REJECTED. How could this happen, you ask? You agreed to pay the seller's price. Why did they refuse to accept your bid? Sellers sometimes refuse to consider offers conditional on the sale of another house.
Because they don't consider it a bonafide sale. From their perspective - a view often shared by their agent - it's like an option to purchase that will become a purchase if you succeed in selling your own home. Sometimes that's a big if. Thus, they refuse to tie up their property with a 'non-sale', which could discourage unconditional buyers from even viewing their home.
Choosing to buy first could mean investing a huge amount of time and effort in the search, finally finding your dream home ... only to have your hopes crushed.
This is a highly likely scenario, particularly if competing with another buyer who has no home to sell or who opted to sell first, or where the market is hot.
Ask yourself, 'Do I buy firm and gamble I sell my house in time to close on my new one? Or do I start the search all over again and hope to find yet another dream home belonging to someone who will entertain my conditional offer and allow me time to sell my house?'
Since nobody can foretell the future, precisely predicting the ultimate sale price of your present property is impossible. Evaluating a home is, at best, an educated guess - a guesstimate. If you buy a new place based on an anticipated sale price for your old digs and fail to get it, you may not be able to afford the new one. Oh no!
Let's look at another possibility
Let's say you find a homeowner who agrees to accept your offer, conditional on selling your house. It's standard practice to include an escape clause in the contract, which allows the seller to continue to show their home to other buyers and ...
If they accept an offer from a new buyer, you'll receive a notice from the seller through your agent to either waive (remove) your condition(s) and firm up the agreement under the previously agreed terms, or sign a mutual release and have your deposit returned, usually without interest. Depending on the terminology of the escape clause, you might be forced to remove all conditions, including financing and home inspection, whether or not they've been fulfilled. Once released, your dream home becomes the home of the other buyer and you start the home search all over again. Ugh!
There's a possible upside for you, though.
Once a seller accepts your conditional offer with the escape clause, buyer interest in that property usually diminishes. Others may be discouraged from even viewing it, preferring to avoid waiting the typical 48 hours of an average escape period.
Because they don't want to go to all the effort of viewing and negotiating an agreement, only to learn that the first buyer (you) waived the condition (your contractual right). This means the second buyer loses the home they wanted.
The downside is that you may have to ...
... because no seller wants such a condition. They may force you to pay a premium if you want them to seriously consider your offer.
Either way, you may find the experience particularly stressful.
Buy or sell first? Complicated?
It can be without experienced guidance.
Here's a scenario for you to consider. Let's say a seller accepts your conditional offer. A week later, you receive the Notice to Conditional Buyer giving you 48 hours to decide whether to remove your conditions or release the seller.
And you've already accepted a conditional offer on your old home that won't become firm until after the 48 hours notice period have elapsed. Do you gamble you might sell your own home firm and waive the condition(s) in your purchase, thereby buying unconditionally without a firm sale of your present property? If you do and your sale falls through, you're still committed to close on your purchase.
If you don't remove your condition(s) because you refuse to take this risk and release the agreement on the new place, but your sale firms up, you've sold your present home with ...
Using common vernacular for getting notice to firm up or release, if you're 'bumped' and your old home hasn't sold firm and you're not a gambler, you'll probably release the purchase agreement on the new place. If you'd accepted a conditional offer on your old home and it fails to firm up, you're back to the drawing board.
The search begins anew.
Buy or sell first? Here's more for you to consider when you're trading houses. The opposite approach is to ...
... at a realistic asking price. You and your agent can certainly explore the market for a new home, even going so far as to actually view properties, but you refrain from submitting any offers.
Obviously, you avoid the challenges and disappointments as described above, however, this method is also not completely without risk.
An advantage, though, is that when you sell your own home, you'll know exactly how much money you have to work with and how much you can afford to spend. Your agent can calculate the cash left over from your sale after real estate commission, outstanding mortgage balance, discharge penalties and assorted closing costs are deducted.
Nevertheless, you've sold your home and don't yet have another. If you're fortunate, you spotted one while exploring and submit an offer right away.
Another advantage is you may find yourself in a ...
... because you've already sold your old home. Hence, your purchase offer will have only the short term (and usually fulfilled) conditions such as financing and home inspection.
If your agent is a strong negotiator, under the right circumstances, they may be able to negotiate more attractive terms - including a lower price. It will, of course, depend on the seller's feelings (i.e. motivation) and marketing experience with their listing.
I suggest that the worse case scenario is that you sell your home first, aren't able to find a suitable home to purchase and simply ...
It's not ideal, but it certainly minimizes the risk and eliminates the stress about whether to buy or sell first. This trading houses methodology means extra effort due to the double move. But while living in your rental, when you finally find your next home, you're perfectly poised to pounce. No matter which way you go, buy or sell first, you'll need to ...
If you sell your own home first, you may have committed to a fixed date on the sale to which the homeowner of your new place can't agree because of their own personal circumstances.
If you buy first, you must commit to a closing date that the buyer of your own home may not be able to accommodate. Imagine losing a sale with a great price just because of the closing date!
During negotiations, the closing (possession) date is often as
important as the price. Hopefully, all the realty agents involved can
successfully negotiate a mutually satisfactory date.If not, there's always bridge financing to resolve the date differential.
So, have a house to sell? What's the best way to go? Buy or sell first?
Well, it depends.
When my clients were unsure whether to buy or sell first, unless they were seeking a very rare type of property, I usually recommended they ...
If they preferred to buy first, when they found their dream home, I suggested they be prepared to jump right in and buy it without the benefit of a sale condition. They must be fully prepared for the consequences, however, by having all their finances in place to handle any scenario.
How do you feel now? Buy or sell first?
If you prefer to have professional guidance through this somewhat challenging experience, to have someone help with the decision on whether to buy or sell first, depending where in the world you're located, I may be able to recommend a good agent for you. Or if you're trading privately, I am here to offer advice. (By the way, if you buying and/or selling privately, you can easily prepare real estate forms and other assorted legal documents by clicking here.)
Any questions regarding whether to buy or sell first? I invite you to contact me.
Here's a great example of the old adage about a rock and a hard place. Have you ever been faced with the following tough choice?
Because the seller (maybe a bank and a foreclosed property, or a homeowner in a hot market) of the property you hoped to purchase flatly refused to entertain any offers with a condition on the sale of another home, you had to choose between one of two risky positions; buying unconditionally and hoping your old place sells in time to close on the new one, or listing first while praying your dream home remains available until your present home sells.
Did you choose to sell first before offering on the next, or did you buy first without the condition? Why? How was the experience? Was your transition successful? Did you get the terms you had hoped for at both ends?
If you were fortunate enough to be able to buy first with a condition on the sale of your present home, did you have any objections from the seller? Do you feel you had to pay a premium because of the sale condition? If you were forced to sell first, do you feel you got a lower price on your purchase due to the lack of such an undesirable condition?
Do you regret your choice? Would you do things differently next time? Why?
Do you think you've got the best, worst, funniest, most embarrassing or nerve-racking story to tell? Here's your chance to compare notes, share tips and maybe commiserate or celebrate with other guests who may have undergone a similar experience.
I invite you to submit your story, article, commentary or questions about your experience - successful or otherwise.
This support forum is not intended as an opportunity to complain. It's a chance to express yourself and hopefully help others who may be faced with similar challenging situations. Maybe they can learn from your story. Please provide respectful remarks and advice only. Profanity, disrespectful or abusive comments will not be tolerated.
I implore you to treat this as a soft place for friendly people to land, share and learn from each other. I'll do my best to respond when appropriate in a supportive and encouraging manner, and answer any questions within the realm of my expertise.
To help you trade in the real estate market like a pro - wherever you happen to live - check out my book entitled The Happy Agent.
Though written to help professional realty agents improve their skills,
it also a great resource for both home buyers and
sellers. This easy-read book, including its numerous home buying and selling tips,
will teach you what to look out for, what to ask your agent and help you make a thoroughly informed decision. When spending big money,
I'd say it's smart to make informed choices. Wouldn't you? A small investment of your time and a pittance of your money could conceivably save you thousands. Remember - knowledge is power.
Available virtually everywhere print and e-books are sold.
A must-read for anyone contemplating a realty career and the perfect antidote for agents seeking a more productive, less stressful direction for their own realty business.
It’s also designed as an insightful resource for home buyers and sellers curious about the ins and outs of buying and selling real estate.
"An inspiring and candid tale of one man's journey to success as a real estate agent and achieving inner freedom. This book is sure to ignite the passion and holds the key to unlocking the power that lies within us all." Gina Ceci, Real Estate Lawyer