As you may know, we put our co-op on the market to sell recently. Our plan is to sell our home then look for a house to buy. As we have a third little one on the way we could use some extra room!
But why sell our current place first then buy a house?
If you asked me a little while back I would have said the order of operations for a home is to find a new place to buy then sell the old place. It’s what my wife thought too and I think it’s what many people think as well. Fortunately a friend told us we may be better off selling first then looking for a new home.
Here’s why you should sell your home first then buy a new home:
- You can get stuck in a tough economy and have a hard time selling – Imagine you found the home of your dreams. You’re all ready to move in. Problem is you still have to unload your old place otherwise your stuck paying on two properties! By selling first it helps ensure that you can afford the new house on time without worrying about extra mortgages to cover yourself.
- You might get desperate and take a low offer – It’s stressful knowing that you have to sell your place in X time in order to buy the new one. As time ticks by you get antsy and those low offers start to look decent. Out of desperation you can end up taking less then what you could just so you can move forward on the new place. By selling first you wait for an offer you want.
- You can take more time to get to know the new neighborhood – Instead of buying a new home you can try to rent a house in the new neighborhood. This way you get a feel for the neighbors and the school. With the money from the sale of the old place socked away you have time to truly find the home of your dreams. Rent could be more expensive in some cases but how expensive is committing to buying a house then finding out you hate your neighbors a year later?!?
- Cash leverage – If you buy a home first you will most likely put a bit into the contract that says you have to complete the sale of your old place before you close on the new home. This helps protect you from being stuck with two places. But it doesn’t make you an attractive buyer either! If you have the cash from the sale of your old home you now have a bit of bargaining leverage. You can tell the sellers/realtors that you are prepared to buy NOW. In fact you could even tell them to know some of the price down because the process will be quicker to close. Remember, a seller is most likely in the same boat as you and wants to sell as soon as possible for the best price they can get.
- Economy not expected to jump up any time soon – Forecasts haven’t been particularly bright for the economy lately. If we have to wait a bit to buy a new home then that might benefit us more as housing prices could drop further. True, prices could go up too but we’ll have the cash to move on a house if needed.
- Security – Having the cash first will make us feel more secure and will make us look better to mortgage lenders. The other way around, not as much.
What do you think? Is it better to buy first or sell first?
{ 9 comments… read them below or add one }
I agree with you. The only exception, I think, is if you are moving a long ways away and you have to get into something. We’re already planning for the time when, 5 or 6 years from now, we move on as my husband finishes school and puts in a little time for work experience. We may have to buy before we sell this place. Renting it out is an option, I guess, if it doesn’t sell. But if you’re making a close move, I agree that you should sell first.
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@ Miranda – You don’t necessarily have to buy first. You could rent and then you don’t have two potential mortgages going on at once. But yeas there are situations where you can buy first but I think there’s compelling reasons to sell first for the average person.
@ PT – Exactly! That’s why we haven’t been seriously looking yet. We don’t want to find what we think is the perfect house before our current place is taken care of. Emotions have a way of skewing your reason.
@ Tessie – With a fully paid house the situation does change a bit. You’re not stuck with the same liability. Ours is fully paid but we would still be stuck with maintenance costs which could add up quick!
Definitely more reasons to do things in the proper order, like you say. That’s how I think I would do it.
I think where most people get tripped up is starting the house hunting process prematurely and finding the perfect house. They then feel the need to make an offer before anyone else gets it.
That’s not the position you want to put yourself in, IF you’re trying to follow the conservative path you’ve described.
Basically, try not to get ahead of yourself. Our emotions are stronger than we give them credit.
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Hmmmm. It depends. We did this – “buy, move into new house, then put old house up for sale” on our most recent purchase, and it was great. Old house was clean and empty, so no stress for those unexpected showings. Old house sold in less than a month (Jan. 09), which was nice in this market. We didn’t get our full asking price, but we still made a nice little profit. I’ll take it!
But, and this is a BIG BUT, we didn’t have a mortgage on the old house, and we had saved up the 20% down payment for the new house. The least stressful house selling/buying experience I’ve ever had. If any of those circumstances would have been different, though, I think I would have just stayed put. But if you can’t stay put- a bird in the hand is worth two in the bush, especially right now. I would sell first, then move. It’s not so uncommon to have very short escrows now, which you can make a condition of purchase for the new house. Ours was only seven days. Sellers are motivated!
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With Tessie’s situation, I could understand not waiting. But for most people, I think FFB is the way to go. On the other hand, I’ve thought that even in good markets. There’s always the chance your house won’t sell. Maybe your neighbor has the same house (common in Seattle) and is asking less. I am one to hedge bets. You can always rent for a couple of months in the worst case scenario.
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@ Abigail – There can certainly be situations where you could buy a house first. But you are right, you just don’t know what will happen even in good markets. And renting can really help get a feel for the neighborhood you like.
@ TStrump – Nice to hear that you price doubled! With cash in pocket you are definitely in the driver’s seat.
Definitely a great idea to sell first.
It really puts you in the driver’s seat with regards to buying your new home – you can take your time.
I sold my condo (before the market took off) and it was 6 months before I got an offer. Had I purchased another place (which I didn’t) I would have been screwed.
(Oh, the price did double for the new owners)
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You should definitely sell and close before you buy. We had a contract on our house for sale and bought another house. Unbelievably (and sadly), the buyer of our house got sick and died during the month before closing. We ended up owning two houses for 5 months. It was awful all round. We will NEVER do that again.
@ Sheila – That sounds horrible! But things like that can happen and then you have two locations to take care of. Thanks for sharing your experience!
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