Selling and Buying a House at the Same Time
Making the decision to move out of your existing home and into a new property can be extremely exciting! A big kitchen with an island that you and your family can gather around. An ensuite master bath with double vanities and a huge shower. More space, a better commute, a bigger yard, a new school...
Whatever your reason for wanting to sell and purchase another home in Maryland, the first thing you need to do is to determine what comes first: the buying or the selling?
Buy or Sell First? The Simple Answer
The simple answer is, it depends. Because every situation is different, and every family tolerates the risks and rewards differently, what's right for one family is not what's right for others, or even possible. Knowing whether to buy or sell first depends on a few factors and how important each of those factors are to you and your family. To help you evaluate your options, we've developed the following lists of "pros and cons" for both scenarios.
Selling Your Home First
|
Pros |
Cons |
|
|
|
|
|
|
|
|
|
|
Pros of Selling Your Home Before Buying1. Selling your existing property before purchasing your next gives you cash in the bank to use toward the down payment on the new house. Cash in the bank also demonstrates a strong financial position which is attractive to sellers and increases your negotiating power. Sellers always appreciate a financially strong buyer, but in a hot market, if sellers are evaluating multiple offers, this could be the factor that gets your offer chosen. 2. The next pro that comes with selling first is not having to juggle the responsibilities and payment obligations of two mortgages at once. Qualifying for, and paying only one mortgage will give you more purchasing power for your new home and less money going out every month. 3. Knowing the final sale price and how much you will net from the sale will help determine how much you can afford to spend on the next house. You won't have to worry about overestimating or underestimating your proceeds because you'll know exactly how much you will be getting and you can base your budget for the next house on real numbers. Knowing your numbers usually reduces stress. 4. You won't have the pressure to lower your sale price to fit into a deadline. If the deadline of possession on your new home is looming, you may feel forced to lower your selling price in a decision made out of panic. This situation will result in a very happy new buyer and less money in your pocket. 5. The last pro of selling first is you won't have the pressure of a deadline to sell. If you can't get the proceeds you need in order to make the move, you have the option to wait for the right time and the right price without having to pay two mortgages. The Downsides of Selling Your Home Before Buying There are certainly a lot of pros that come with selling your home first- but what are the associated risks? 1. If you sell your home before buying a new property, you may be forced to move twice. Selling before buying means you may not have a place to live once you go to settlement on the sale. So where will you live if you haven't bought a new home yet? Will you want to go through the process of moving your possessions twice? Some families find a short-term rental to live in or move in with family, storing their possessions until they are able to buy and move into the new house. Clearly, this is not ideal. Although we've never had a homeless client, we find that potentially being homeless, or moving twice, is what worries our clients the most. No one wants to live in their car!
2. One way to avoid the potential of moving twice is to negotiate a post-settlement occupancy agreement in your sale contract. Although it's commonly known as a "rent-back," there's no landlord/tenant relationship between you and the new buyer of your home; it's a license to remain in the property for a period of up to 60 days following settlement. You'll have to pay a refundable deposit and your license fee ("rent") at settlement, but this option can give you enough time to find and move into the next house before you have to move out of your old house. However, it might weaken your negotiating power if it's not convenient for the buyers to allow you to remain in the property after settlement. Although there's some downside with adding a "rent-back" to your sale, this can be a great compromise if you have to sell first. We've successfully used this strategy hundreds of times so if you want to learn more about this option, contact us to discuss the details. 3. To sell for the highest price quickly, it's best to present in its best showing condition. You might find, however, that it's difficult to keep a pristine home while living in it when it's the market for sale. Even more so with children or pets. Additionally, many home sellers require some work to be done prior to sale. It's often much easier to do things like paint and refresh a kitchen or bath when you are not living in the property. Don't worry though, if you need to sell while living in the property. We've helped hundreds of families navigate this challenge and have all the resources to make it go smoothly. 5. Lastly, if your dream home comes along before you've sold, you may miss your opportunity to purchase it.
Buying a New Home Before Selling Your Existing PropertyNow, let’s look at the prospect of purchasing your next home before selling. |
|
|
PROS |
CONS |
|
|
|
|
|
|
|
|
1. The biggest advantage of buying first is only having to move once. The process of moving your family (and all their possessions) is a daunting task. Doing it more than once in a short period of time can be trying and costly.
2. If you purchase your new home before selling, there will be no pressure when searching for your perfect match. Since there is no deadline, you can browse the market without stress and find a new home that truly fits your lifestyle, "must haves," and "wants" in your own time.
3. Getting a house ready for sale and keeping it in pristine condition so that it can be shown at a moment's notice takes a lot of work and can be inconvenient, especially if you have children or pets. Our clients find that one of the biggest advantages of buying first is the ability to move to the new house and hand the property over to us for the sale preparation. You won't have to worry about decluttering, living through the preparation of fix-up work and staging, and cleaning up every day that the property is on the market. Our design and project management team will take care of all of the details while you are focusing on getting settled in your new house!
4. You may have to do some work to your new home to get it just right. Painting and refinishing wood floors is so much easier in a vacant property. If you buy before selling, you'll have the option of getting work done to the new home while living in the old one. Work usually goes much faster when the house is empty which translates into better pricing for you. It also eliminates the hassle and inconvenience of living in the house while the work is being done.
The Downside of Buying Before Selling a House
1. If you haven't sold your home before buying, the down payment for the new house will need to come from funds other than the equity of your home, which will temporarily impact your reserves. If you don't have enough cash in savings or checking for a down payment and buyer closing costs of the purchase, you may be able to borrow it from your retirement plan or get a bridge loan, essentially letting you borrow the equity that's in your current home.
2. When buying before selling, you'll have to qualify for carrying two mortgages at once. The combined total of both monthly mortgage payments will be used to calculate the financial ratios to approve your loan, even though you will be selling your old home. This could limit the desired purchasing power for your new home if your ratios are too high. You might also have to pay two mortgage payments for a few months unless you buy the new house contingent on the sale of your old house. Having a home sale contingency in your purchase contract means that you won't be obligated to purchase the new house unless the old house sells. This approach can work if the real estate market is buyer-driven and it's hard for sellers to find buyers or if you are willing to pay a premium in price. When inventory is low, however, or it's a seller-driven market, most sellers will not accept an offer contingent on a home sale.
3. Since you don't know the exact selling price because you haven't sold, you may over- or underestimate your sale proceeds which could affect your budget to purchase. Overestimate your proceeds, and you may have bought a house that's too expensive for your budget. Underestimate, and you may have passed on a house you thought was too expensive.
4. Now that you've bought, you'll want to sell your existing property quickly. This can create pressure to avoid paying two mortgages and possibly result in you accepting a low offer prematurely.
So, What’s the Best Option for You?
Hopefully, this article has pointed you in the right direction. It's a question of what risks you are able to tolerate more easily and which rewards are most appealing. The most important thing to remember is that every situation is different. The market is constantly shifting, and everyone is dealing with unique finances. That's why it's extremely important to work with a Realtor that a) has experience working in your local market and b) has a proven track record of finding solutions that meet their clients' needs.
The Donna Kerr Group understands the challenges you face in deciding on a strategy that works for your unique situation. We'll talk through the options to see which is the best course. No matter the order of buying and selling, we have resources to help you find the perfect new home, declutter and prepare your property for a quick sale, with minimal impact on your family. Our properties sell for $45 more per foot than other Realtors so we'll get you the most money for the next house while making it as painless as possible. If you are considering purchasing a new home, we would love to meet with you to discuss buying or selling first!
Connect with one of our agents now by clicking the button below.
Discussion
Well, this blog has solved my queries about selling or buying first. Pros and cons make it crystal clear what one should do. Great one.
Post a Comment