The Ultimate Guide to Selling and Buying a Home at the Same Time

There are different studies showing that an average homeowner stays in a home between 7 and 13 years. Whatever the case is, for most people different homes in different locations are needed at different stages of their lives. Majority of people seem to switch homes between twice and four times in their lives. The very first home you bought in your 30’s may not be big enough after your children grow up and you may feel the need to upsize your home at some point with a bigger house that has a backyard. This type of upgrade also comes with moving to a different location for the home, which is usually away from the city center. After children move out, that’s another point in life where you may need a different home. Some people move back into the city in a condo, or others simply get a smaller house reducing space their monthly payments. As you get even older, you may need a one-story house without stairs as your mobility becomes an issue. Our need for a different home is perfectly synonymous with our lives.

Having said that, if you currently own a home and you want to sell your current home and buy a new home, what is your best strategy for the transition? Sell first and buy? Or buy first and sell? There is really no answer to a point where I can generalize which is usually better for anyone. It really depends on these questions below.

How competitive is the type of the home you plan on purchasing?

Regardless of whether it’s a seller’s market or a buyer’s market, homes in the median price range or below have more buyer competition. In the Portland metro area, the median home value from most places ranges from $375K to $425K in today’s market. Of course, there are areas where the median home value is at least a half million dollars but around $400K is the median throughout the metro. Also different home types have different price ranges and demand. There are condos and townhomes that are well below the median of detached single family homes. So how quickly do homes get sold for the type of home you want to buy in the area? If the homes sell out like hotcakes, you need a different strategy versus buying a type of home that sits on the market for longer in the area. Sellers prefer offers without a primary residence sale contingency. If you are wanting to put an offer with that contingency for a type of home that sells within the first 10 days of listing because of high demand, you won’t get that home unless you offer a higher sales price to compensate for the risk of your not selling your home on time. The listing agent will also want to see how quickly your home will likely to sell so that the seller understands the risk and evaluate it against the benefit of accepting your contingent offer. In this case, the easiest way would be buying first before you sell if you can be approved for a second mortgage free of your primary home sale contingency. If you can’t get such a mortgage pre-approved, then your strategy should be to minimize the risk of your contingent offer to the seller by waiting until you accepted an offer on your primary home or until the inspection negotiation is complete. Often after an inspection negotiation is complete, the risk of the transaction falling through is a lot less likely. It could still happen by the way. If that doesn’t work, you may need to wait until after closing to buy a home. If you can purchase the second home out right with cash from closing, the transition can be smooth. You will only need 10-15 days until you put an offer and close with cash after inspection. Of course, as your real estate agent, I would have negotiated for your rent back for up to 15 days after closing on your first home so you don’t need to move elsewhere in the mean time. The worst scenario would be having to find a rental home after closing on your home and to hunt for your second home but it may still be necessary if you are looking for a rare home.

How many similar inventories are there for the type of home you want to buy?

The number of inventories will also dictate your strategy when selling and buying a home. More the number of inventories, easier your home selling and buying transition will be. If you are looking for a very rare home to purchase, which only comes on the market once every other month, timing your selling and buying will be very difficult. Of course, the inventory that pops up may be in high demand or low demand and that will play a factor in ways explained in the first bullet point. Often it becomes necessary to get a rental home in this scenario but if you have lots of pets, or have a large boat, things will be difficult for you to even find a rental home that allows your current life capacity on a month-to-month lease. You will need to ask for your family’s help or come up with a creative solution.

How quickly will your current home sell?

Depending on how quickly your current home will sell, you can move forward more quickly with your offer to buy a home. Also, if it is apparent to everyone including other real estate agents that your home will sell quickly, then you may even have the power to get your offer accepted on a second home as soon as you list it on the market. Pricing your current home competitively to sell quickly will help. If that’s the case, you will have a better chance of negotiating a rent back at your current place. It’s all about utilizing your leverage in two different transactions to coordinate for your best possible move. It’s not easy and that’s why I provide a thorough consultation with clients wanting to sell and buy.

Downsizing or upsizing?

Downsizing or upsizing may provide different levels of demand for your target home to purchase. It will depends on the location, price range, and home types. The bottom line is whether you are downsizing or upsizing, figure out the level of demand and competition for your target home to purchase.

Cash or mortgage for buying?

Cash is king as always but for the majority of people, taking out a mortgage is a necessity for your next home. As discussed above, depending on whether your mortgage pre-approval is contingent upon closing on your first home or not, it will affect your strategy. You also need to work with a good loan officer who can provide lots of customer service so you know all your options upfront.

The Process

Now, let’s consider different strategies in how to go about your selling & buying process.

Submit a contingent offer before putting your home on the market

If you plan on taking this route, think about why any seller would accept your offer. The seller must be not only desperate to sell, but you must be confident that your home will sell very quickly. Normally, two months of escrow is kind of the standard in home sale contingent offers so in that case, you will have two months to sell and close on your current home.

Submit an offer before you accepted an offer on your home

Submitting an offer while your current home is at least listed on the market is a better scenario than the above. This is still a very risky proposition to a home seller. Especially if your home has sat on the market for a few weeks, you will need to wait until at least you have an accepted offer. But what if that unicorn pops up while waiting to sell your home? You’re afraid it will be snatched up before you sell your home. Go back to the previous bullet point and analyze how much demand that unicorn has.

Submit an offer before the completion of inspection negotiation

This is more of a common case of contingent offers where you would submit an offer to buy a home along with the copy of your accepted offer from your buyer. There is still a lot of risk in accepting an offer like this as many deals do fall through after inspection so sellers will not want to commit to this kind of an offer as the deal is still at an infant stage. Before taking this route, you need to truly evaluate whether your home has any serious defects and whether you have room to reach a negotiation with your current buyer if enough issues are raised after inspection.
Submit an offer after inspection negotiation is complete and your home is on schedule to close.
If you are able to do this, more power to you. Sellers will be a lot more inclined to accept an offer like this even if there is some demand for the second home. As a real estate agent, my job is to make an offer look as attractive as possible to a home seller and this offer may even be a competitive offer. The only risk is that the seller may still think your deal may fall through if your home still hasn’t been appraised or your buyer’s lender may refuse to lend due to some unforeseen issues spotted by an underwriter.

Renting out your first home and buying your second home

Some home sellers choose to rent out their first home and then buy a second home. In a case like this, your best bet is to buy first and then take steps to rent it after you move out of your current home. If for some reason, you choose to rent out your first home and rent for a while until you buy your second home in order to count your rental income for qualifying your second home’s mortgage, remember the 75% rule meaning lenders count 75% of your rental revenue as your rental income. 25% is the standard market expense when operating a rental property so lenders choose that figure for your rental net income in mortgage pre-approval.

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