Buying and Selling at the Same Time

For today’s real estate tip we’re discussing buying and selling a home at the same time, which can be especially challenging if you need a mortgage on your new home and also need funds from the sale of your current home for a down payment. Having the ability to pay cash for your new home or to cover the down payment on the new home are huge advantages, but this video is designed for those who don’t have those advantages.

Buying and selling at the same time is not only a significant financial undertaking but also an emotionally taxing process. The enormity of the financial concerns, combined with the uncertainty about your living situation, especially in the short term, can be overwhelming. It can feel like you have no control, but it’s important to remember that many people have successfully pulled off this move, and there are multiple ways to do so. The process requires careful planning, and one of the first steps is sitting down as a family to discuss what’s important and to work through potential problems together. Preparing for the move and the sale will be disruptive and stressful, but if everyone knows what to expect, it reduces the stress caused by uncertainty or surprise.

The first step in managing this process is hiring a listing agent. This agent can also represent you in the purchase of your new home or recommend someone who can. The Realtor's knowledge of the market will be invaluable in helping you craft a strategy. The second step is finding a lender and getting preapproved for a mortgage on the purchase. Your lender can also discuss financing options like bridge loans, which can help facilitate the transition.

During this process, it’s important to avoid taking on lots of credit card debt or making large purchases, as this could affect your mortgage approval. Another important step is finding a moving company, particularly one that also offers storage services. Once you’ve identified these professionals, the next steps involve preparing your home for sale—decluttering, removing personal items, and making minor upgrades while you’re still living in the home. Your Realtor can provide a specific plan tailored to your situation.

Deciding whether to buy first or sell first is a complex one, and your goals will play a significant role in this decision. Buying first gives you the luxury of choosing your property and might allow you to avoid moving twice, but it’s often more costly and involves more risk.It’s more costly because, unless you can pay cash for the new home or have the cash for a down payment, you’ll need either a bridge loan or a similar program—these can be expensive, especially if it takes a while to sell your home.

The risks include not knowing exactly what your current home will sell for, which could put you in a difficult financial situation if it sells for less than expected. Also, if your home takes a long time to sell, or worse, doesn’t sell, it can be a crippling financial hit. However, buying first also allows you to have your current home vacant while it’s on the market, potentially enabling you to get a higher price.

On the other hand, selling first removes these uncertainties but can put pressure on you to find a new home quickly, potentially leading you to compromise on some of the things that made you want to move in the first place.

There’s also the challenge of your living situation after you’ve sold your home. Since you haven’t bought your new place yet, you need a plan—whether that’s staying with friends or relatives, getting a short-term rental, or staying in a hotel. Negotiating a rent-back is an option to avoid two moves and may make sense if your home is in a seller’s market, but that can add a layer of complexity, especially if there’s a hiccup in escrow on the buy side. This approach involves two moves and can be incredibly stressful.

Another option is a hybrid approach, where you list your home while living there and house hunt at the same time. This approach can be helpful in a time crunch, and if everything goes right, it could allow you to coordinate closings. However, it doesn’t totally mitigate the challenges from either of the other approaches and can, in fact, exacerbate them.

I’ve mentioned rent-back agreements, but using contingencies can also be an option depending on the dynamics of the market. In a seller’s market, purchasing a home contingent upon the sale of your current home is a very difficult contingency to secure, though it may be easier if you’re selling to get a contingency on finding a new home, depending on the flexibility of the buyers. However, this will likely cost you money on the purchase price.

If you decide to buy first, it’s critical to have a good estimate of what your home will sell for and how quickly it will sell. This information will guide your purchase price and help you estimate the carrying costs of maintaining two mortgages. Having items in storage already and preplanning the move will help streamline the process. Investigating different financing options, such as bridge loans or other programs, is also key to ensuring you can manage the transition smoothly.

If you’re selling first, having a detailed plan for preparing and selling the home while you’re still living there is crucial to minimizing disruptions. Your Realtor can guide you through the process of decluttering, making necessary upgrades, and staging the home to present it in the best possible light. However, if getting top dollar is your most important goal, moving out of the home into temporary accommodations before putting it on the market is probably the best approach. This allows you to present your home in its absolute best light, maximizing the sale price.

Defining your overall goals and crafting a plan to meet them is critical. This process starts with hiring a Realtor who is a great process manager and problem solver. If you’re moving into your forever home, I strongly recommend doing everything possible to buy first so that you have no regrets about your home, unless time is not a factor. If time is not a factor, selling first is the best option, especially if you’re relocating or think you might be making a move in the not-too-distant future. Regardless of your approach, pricing your home properly is critical, and I would not recommend pricing above the market. If a quick sale is a priority, a below-market pricing strategy may be the best fit.

For more information about buying and selling at the same time and for some strategies, don't forget to check out my Power Seller's Guide. It has a wealth of information about different approaches to buying and selling at the same time as well as tips and insight to help at every stage in the selling process.