Buying and Selling at the same time
At one point or another in most everyone’s life, the time comes when a change needs to be made in housing. Your family is outgrowing your current home, you are ready to make the move from a condo into a single family home, or maybe you are now empty nesters and ready to downsize.
In most cases, every one of these situations require you to do two things.
1. Sell Your Current Residence
House #1
2. Buy Your Future Residence
House #2
Assuming you need the money from house #1 in order to make the purchase of house #2 happen, you will need to do some major coordinating!
A lot of factors go into how to buy a house before selling yours. How will it work? There are lots of ways you can make this happen.
No matter what, go ahead and get pre-approved for your future residence.
Even if you will be using funds from the proceeds of the sale of house #1, go ahead and get pre-approved for house #2. This will help you and your agent understand what kind of offer you can accept on house #1, in order to make a house #2. The last thing you want is to get a contract on house #1 & realize you don’t even have access to the funds to make your ideal move a reality.
Now that you’re pre-approved for house #2, it’s time to decide when to begin your home search.
Option #1: Start your home search for house #2 before house #1 is listed.
Most people want to be sure that there are options out there that will work for them before they pull the trigger on listing their home for sale. If you are most people, have your agent set up an online search for you so you can start to learn the market and see what your money can buy. Don’t hesitate to get out and take a look at a few properties to be sure that you are making the right choice to move. I would not however, exhaust yourself by seeing numerous homes, because odds are, some of them will not even be available by the time you’re ready to make an offer.
Which leads me to…. Have a game plan in place for the sale of house #1! If you’re going to begin your home search prior to listing your home, have a concrete plan mapped out for how to make the listing happen once you’re ready to pull the trigger on house #2. You’ll want to work with your agent to determine list price (or at least a range), turnaround time for professional pictures, a plan for de-cluttering, staging, any updates needed… It’s also not a bad idea to go ahead and start working on some of the documents that may take some time to complete like the seller’s disclosures, etc.
Option #2: List house #1 then begin your search for house #2
Another option is to go ahead and list your home before you seriously begin your search. Some buyers don’t want to waste time looking until house #1 is on the market and they see how much activity they are getting. In addition, some buyers prefer to wait until they have a deal on house #1 before seriously starting the search for house #2 to eliminate some of the unknowns. This is also a good option if you know for certain you want to sell house #1, even if where you land is a little uncertain.
Now that we’ve discussed how you want to begin your home search, we can move on to making an offer on house #2. There are a couple of ways to get it done.
Option #1: Write an offer contingent on the sale and closing of house #1
Once house #1 is on the market and you find a good option for house #2, you have the ability to make an offer contingent on the sale and closing of house #1. You would consider this option if you find a house #2 you love, but you currently do not have any offers on house #1. Typically, if sellers choose to accept an offer like this, they will do so with what is called a first right of refusal.
A first right of refusal essentially means that the seller still has the right to market their home for sale. If they receive another offer they would like to pursue, they give the current contracted buyer (you) a certain time frame (whatever was agreed upon in the contract, usually 24 or 48 hours) to remove the contingency of the sale of house #1, and to proceed with the deal. If the buyer (you) cannot remove the contingency (essentially meaning get an accepted offer) within the agreed upon time frame, the seller is free to declare that contract void and pursue the other deal.
One of the biggest risks of securing a home that is contingent on the sale and closing of your current residence is that you might miss out on the property if another ready, willing & able buyer comes to the table.
TIP: If you go this route, pay very close attention to when you must conduct your inspections. In some instances you can negotiate that inspections on house #2 begin once house #1 is under contract. This is ideal for some buyers in one regard, so you are not fronting inspection money on a home you still might lose out on. However, that also means you are extending the risk of finding out about a major issue once you’re too far into the deal- aka you have a contract on house #1 in place. As a buyer, you have to decide what you’re willing to gamble on- losing out on the inspection money or risking having to navigate issues uncovered during the inspection.
Keep in mind, that once you secure a contract on house #1, your ‘first right of refusal’ on house #2 goes away and you have it locked in.
Option #2: Write an offer contingent on only the closing of house #1
Once you get a contract on your current residence, you can always make an offer on your future property contingent only on the closing of your current residence. These type of deals come with less risk, because a first right of refusal isn’t in play. Doing things this way means a seller cannot accept another offer, unless your contract on house #1 falls through.
Possession at closing, delayed possession, or early possession?
Another important piece of the puzzle to consider is timing possession of each property. In most cases, buyers are going to want possession with closing. That means you hand the keys to the buyer at closing, so all of your belongings have to be moved out. If you’re closing back to back deals where both have possession taking place with closing, you will have to coordinate your movers to move you out of your old place, and directly into your new place.
Sometimes you can negotiate delayed possession, or early possession into one of the deals. Maybe the buyer of house #1 will allow you to maintain possession 2 days after closing in order to allow you time to move out. Or maybe the seller of house #2 will allow you early possession a couple days before closing in order to get moved in. If early possession or delayed possession is part of either deal, be sure to have a separate agreement setting forth the terms in place.
There is no universal answer, so therefore…
Always have a Plan B!
Have a ‘worst case scenario’ option in case things don’t go according to plan. Can you put your things in storage for a few days, move in with a family member for a few days, or even temporarily rent somewhere to stay? Be sure to have a Plan B in place just in case things don’t go according to plan.
The best thing you can do is hire an agent who has a ton of experience navigating these waters. They can help you avoid common pitfalls and keep things moving forward – hopefully without a hitch.
