Buy First or Sell First?

One of the most common questions in real estate is “should I buy first or sell first?”.   After all, for most people, buying begets selling and selling begets buying – there are exceptions, like buying investment properties or second homes. But when it comes to the place you actually live, even moving from owning to renting carries this chicken or egg question.

Some clients have decided for certain they want to move and have the financial ability to carry two homes if need be. These clients may elect to buy before they sell. The downside is that they are buying before they know what they will receive for their home. The benefit is that they can have the certainty of purchasing their ideal home. It is advisable for these clients to get as long a closing as possible on the purchase to reduce the chances of carrying two homes.

Other clients are certain they want to move, but do not have the financial resources to carry two homes. In this case, there are two ways to avoid the financial risk.  The first is to sell first and then buy. Aside from eliminating risk, this has the benefit of certainty in terms of selling price and resultant available funds. The downside is that the client may be pressured to purchase quickly or rent for a period of time. This risk can be reduced by negotiating the longest possible closing on the sale, to allow more time to arrange and close a purchase.  The second option is to make an offer on a property conditional on the sale of their own home. This has certain downsides. The seller of the property will typically be less flexible on price when this condition is included. Also, the seller will want to know that the buyer’s home is likely to sell quickly – so the client would need to be ready to get on the market immediately and likely at a lower price than the client would prefer.

For some clients, selling will only be considered if they can purchase a SPECIFIC home. Perhaps a home they have always admired comes on the market but otherwise they are content to stay where they are. If there is sufficient capital to carry two homes, then this client can buy first, but again should negotiate the longest possible closing to reduce the chances of carrying two homes.  If there is not sufficient capital to carry two homes, there are two approaches they could consider.  The first is to list their home immediately upon learning of the desired home coming on the market and hope to sell before the desired home sells. In this case, it is wise to make the sale conditional on their successful purchase of the desired home within a short period of time, so that if they fail to purchase the desired home, they will not find themselves homeless! The second approach would be to make an offer on the desired home conditional on the sale of their home, but this again carries the same downsides that were described in the paragraph above.

These are just a few broad scenarios. Every situation is unique and there are many permutations and combinations. My approach is to work with clients at the outset to carefully consider the details of their situation and advise them in developing an appropriate strategy based on these details.   Please give me a call to discuss your situation.