When it comes to buying a home, buyers try to engineer the ultimate balancing act of buying the new one first, THEN putting the current one up on the market before the ink is even dry on the purchase contract.
The object—and expectation—is to find that perfect home, then to put the old one on the market in the hope of selling it in the treasured but increasingly mythical simultaneous closing.
Just playing it out in your mind is exhausting, but making it actually happen is a truly massive undertaking. What would make anyone think that such an effort is worth trying?
Fear! Fear that you might not be able to find the right home after selling your current home. Fear of being homeless. Fear of temporary housing. Fear of the dreaded “double move” (moving from the old home to temporary housing, then again to the new home).
Those fears may be legitimate at some level, but there are even greater causes for concern if you plan to buy before selling. Here are eight of them…
8 Reasons to Sell Your Home Before Buying a New One
1. It’s harder to sell a house than it is to buy one
In the best of real estate markets selling a home is generally harder than buying one. But in the market as it is now, it’s harder still. With the average time to market a home for sale currently at more than nine months trying to sell your old one within the typical 30-60 day escrow period between signing a contract and closing on a new one is close to impossible.
It’s a “buyers market”, meaning that it’s the buyer who controls the deal, and it’s even harder. When you buy a home you’re in the driver’s seat—that’s easy, especially with all of the inventory that’s sitting out there. But when you’re the seller you’re dependent on buyers to make it happen, and you have no control over what they do.
2. Selling a home is always a guessing game
When you put your home up for sale, there’s no telling when it will sell or for exactly how much. Worse, deals have a way of falling through—especially in a buyers market. Until you sell and close on your current home you have no idea how the transaction will play out. Now imagine that the purchase of your new home depends on all of that working out just right!
If you sell before buying you’ll know exactly what you have.
3. Working on two major transactions at once
Selling a house is hard. Buying a house is hard. Doing both at the same time borders on insanity. When ever one transaction depends on another, compromises will have to be made and that will mean more money out of your pocket in both directions.
By working on each as a separate project you’ll be better able to insure that you’ll get the best deal on both.
4. You’re an impaired buyer
More than a few homes have been sitting on the market for many months in part because offers have been made that fell through. The cause behind this is very often buyers who had to sell a home first and that didn’t go as planned. A seller who’s experienced this will be understandably reluctant to accept a contract with a home sale contingency.
If you sell your home before buying, you’ll improve your bargaining position on the next home. This will probably enable you to pay less for a home because an anxious seller will see you as a “good buyer”, as in one with no strings attached.
5. You might become an accidental landlord
The Plan B for the buy-first/sell-later home buyer is usually found in a lease—congratulations, now you’re a landlord. Few people ever want this to happen—far better to sell, get rid of the mortgage payment, collect your money and go onto the next deal. But this is what can happen when you put yourself into a position of having to cut a deal, any deal, in order to make the next purchase.
A new set of problems emerges once you go the rental route: how quickly can you find a tenant, how much will they pay, how long will they stay, and finally, can I sell the home with a tenant in the property? This is not something to be taken lightly.
6. You’re set up for the biggest risk in the transaction
Few people can carry two house payments and most sellers assume they’ll only have to do so for a month or two in the event they can’t sell the property. But what happens if two months turns into six or twelve? Or more? This is no place to be an optimist! If you plan to carry two mortgages, you need to consider the possibility that it will continue for longer than you think. How long can you handle that, and do you even want to?
In addition, in the current mortgage lending environment, few lenders are even willing to give you the chance to try. One of the biggest factors driving foreclosures has been default by owners of multiple-mortgaged properties.
Carrying two mortgaged properties is probably the biggest risk you take on when you try to buy before selling, and it can quickly turn into a financial nightmare of the highest order.
7. You’re not certain how much money you can bring to the closing table
Most people get most of their down payment money from the sale of their previous home. But you never know exactly how much that will be until your home has sold and closed AND the certified check is in your hand. Buy selling first, you’re certain not only of how much you’ll net from the sale of your current home, but also how much you’ll need to come up with if it isn’t enough for what you want to buy.
8. You may be forced to price your home for a quick sale
Picture this—you’ve signed a contract to close on your new home on the 31st of the month. Today is the 5th. Your current home has been on the market for two whole weeks but not a single offer has come in on it, even though it’s priced $10,000 below market. You’re getting nervous. Late in the day, an offer comes in at $20,000 below your asking price; you’d love to tell the people making the offer to take a hike—but you’re stuck. If you refuse the offer you might lose your dream home. If only you had more time…
You could have, but you boxed yourself in when you signed the contract to buy. The people making the offer on your home have options—you don’t. You lose!
With everything considered, maybe that double-move thing isn’t so bad after all…
Another reason not to buy before you sell is that some insurance companies will not insure a house that has been vacant for more than three months. So, if you move out before you sell, you become very dependent on getting someone – anyone – in that house, or risk losing the insurance on the home. Since the mortgage company requires that the home be insured, no worries – they will provide their own insurance for you! At a highly inflated rate!
Hubby and I are planning to move in the next few years. The difference this time will be the word “planning.” This move will be planned from the first moment to the last, to keep us from all the problems you mentioned in your excellent blogpost.
That’s an interesting tidbit about not getting insurance!
Good advice to think about before you even start to look for another home. Figure out what you are going to do with your current home before you buy the next one. I rented out my home before I bought another. That small decision made my buying transaction much simpler.
I’ve heard so many stories recently about people who were stuck in contract waiting for a home to sell. This is a tough housing market right now.
Good post – I have lived through my parents buying a new house and then selling our old house once, but my Dad was staying with the same company through the relocation, so they helped cover the costs of the period where we had 2 mortgages. If I was just moving without this help, I could see how it would be super stressful!
Would be interesting to see some tips for someone who HAS to move early (maybe they found a new job in a new city.) Although personally I would suggest that the person rent in the new city for awhile anyway, t oget an idea of where they’d like to buy.
That’s a great point about getting to know a new neighborhood before buying a house. You think you know a neighborhood and then you live there and find out all the dirt and different parts and how the schools work and taxes and such. If you can rent for a bit in the neighborhood you like you may be able to prevent buying a home you would regret later on.
Very good post. I hope potential sellers heed your advice. Although most people will probably still discover these lessons the hard way.
What you didn’t mention is that the stress is multiplied exponentially when others are also dependent on your sale for their transactions. I’ll never forget leaving a 5:30 p.m. closing at an attorney’s office to see nervous couple waiting in the office.
They were waiting for the borrower’s money to be wired so the transaction could happen. They needed their sale to close so they could afford to buy their next house. The seller of their next house needed his transaction to close so he could afford to buy his next house etc. etc. etc. The pressure was intense and coming from all over the country as each seller was dependent on another for his deal to go through.
Oh, and did I mention it was the last day of the first time home buyer’s tax credit so everyone was going insane trying to handle transactions in time?
No, it’s not the same as living in a war zone and wondering where your next meal is coming from. But for non-life-or-death events, it was pretty intense.
We bought our house just before the first time home buyers credit expired initially. I remember hearing how crazy it was for the lawyers who otherwise wouldn’t be so busy. We almost couldn’t get the closing date we needed because they were so busy.
I know of a couple that waited almost a year for their buyer to finish their transaction before the couple’s contract could continue. It’s nuts how it can snowball.
We have neighbors who have been carrying 2 mortgages for 4 months waiting for their house to close…feel terrible for them.
I think the plan of action is to sell our house and move in with the parents with the cash in the bank then look for the next house (I am not too sure The Wife is on board with this awesome plan though)
Haha. While moving back with the ‘rents is a nice option to have it might not be easy either.
We sold our co-op then rented for a while before we bought our house. In a tough economy, this helped us with a loan and with getting the house we liked as we had the cash in the bank already.
Great info, but need some advice on a unique situation I have. The current equity in my home is about $130,000 if i sell it for what I think i can get for it (always a big question). I am trying to buy another house for about that amount that I get out of this one $130,000, so an eventual all cash purchase and no mortgage. Have found a home where owner is willing to do a lease purchase for up to a year, and if current home still hasn’t sold, they will require an additional “deposit” or down payment to extend the lease purchase. I can easily rent out my current home while we move into new one under the new plan. We have farm animals, pets, etc. so the temporary residence idea doesn’t work for us. Any suggestions would be greatly appreciated! thanks, PR
My first question would be – Do you have to move? Sounds like there are a lot of question marks here: Can you get what you think your current house is worth; can you sell it; what happens after a year and the new owner doesn’t want to sell/lease; are you willing to be a landlord on your old property?
Though I may be a long way from buying a home, much less selling a current home (I am a renter!), this definitely raises some good points for the future. I do understand the “fear” of the double move, though. I am about to have to go through the dreaded DM and I am NOT looking forward to it. At least I don’t have enough stuff to fill a house yet!
A double move can definitely be stressful and costly but it’s far less then moving into a house that will be difficult to afford because you are carrying two mortgages. Or, buying a house in an area you end up not liking (when you could have rented there for a bit first).
we are under contract for the sale of our home, and are not sure how long it will be before we buy a new one. Everyone thinks this is crazy, but we are content to sell this one and for my children and me to stay with my inlaws for a bit while my husband works out of state for six weeks. This is the first thing I have read that helps me see this is actually a financially sound, and positive step towards actually living a completely debt-free life! TY
Glad this helps with your decision.
I’ve heard so many stories about people stuck on one side or the other because one party couldn’t close their home. If you can sell, and bank the cash, I think it puts you in a nice position when you decide to buy.
Good luck with your closing!
This article addressed a lot of my concerns. I just received an offer on my home to close in five weeks. I believe the buyers have been preapproved. Aside from the inspection, is there anything that can go wrong? Was wondering if it was smart to put in an offer on a new home to close before the close of our home to avoid the double move.
Not to scare you but you never know what can happen. Banks have been stingy and every “t” needs to be crossed and every “i” needs to be dotted for a mortgage to go through.
I can’t say what’s best for you but I prefer renting for a bit before committing to a new house. You can see my arguments above in the article.
Great post. I think the best reason to sell your current house first is the ability to sleep at night. Two mortgages, ouch!
Yes, I can imagine getting stuck with two mortgages when you thought you were going to close one can be quite nerve-wracking!
me and my wife are senior citzens and about to are house on the market what are the good and bad about this move. should we move or stay put.
me and my wife are senior citzens and about tooput are house on the market what are the good and bad about this move. should we move or stay put.