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Buy First or Sell First?
This dilemma is faced by most move up buyers at some point. Should you sell your home first and then buy a new one? Or would it be better to buy first and then sell?
If you decided to sell first, are you sure you'll be able to find the right home to buy later? Are you willing to move into a rented house or apartment if you find a buyer for your home before you find another home for yourself? Will you feel pressured to buy a house that may not be everything you want?
On the other hand, what happens if you buy before selling your current home? Buying first allows you to know exactly what the cost will be, where you are moving and if you need to take along your old furniture or not. However, as great as it sounds, buying first may be a real gamble.
No Price Guarantee
Buying first can be risky because once you sign a contract with a seller, you are locked into that price regardless of the selling price of your old home. Since there are no guarantees, what you think you can sell your home for may not actually be what a buyer is willing to pay for it. If your home sells for less than you thought, you will need additional cash to close the sale of the new home. Ouch!
Real estate markets can be fickle. If you buy in an appreciating market, you could find in the time it takes to prepare your home for sale, the market has taken a downward turn. It may take longer for your home to sell, and you may have to accept a lower price just to get it sold. The sellers will not take less just because you miscalculated.
Can You Afford to Buy First?
What happens if your existing house doesn't sell before you close escrow on the new house? If your down payment is coming from the equity in your present home, you might have to borrow in order to close escrow on the new house. You could end up with two or three house payments, making it difficult to qualify for the loan on the new home.
One solution is to make the purchase of the new house "subject to" the sale of your present home. This is called a contingent sale. In your contract to purchase the new house, have your agent include a clause making the contract "subject to" the sale of your present home. However, be aware that sellers may not accept a contingent offer. If you can afford it, another option is to ask the sellers to consider carrying back a second mortgage. This allows you to use their equity until your home sells.
Our suggestion
We suggest you to sell your house first, but have a clause in your contract that does not give possession of the house to your buyer for as long as it takes YOU to find your next house. This "rent-back" would require you to pay the buyers a prorated, per diem cost. However, it helps to alleviate your risk by allowing you to continue to live in the property for an agreed time frame after it's sold. You'll know exactly how much cash you'll have available for your new purchase, giving you greater negotiating power and you won't be stuck with an extra mortgage payment.
R.E. Opportunity Network
3160 Crow Canyon Rd. #300
San Ramon, Ca.94583
Phone 925-330-6484
Fax 925-362-0849
