Real Estate

Why Sell Before You Buy

One of the first decisions home sellers must make is about timing. This immediately raises the question of whether it is more prudent to buy and then sell, or to sell and then buy. The reality as I see it is it’s almost always better to sell first. While some reasons for this are obvious, there are other lesser-known factors that make the advantage of selling prior to buying a new home evident.

1. Unlock Necessary Capital

Many homeowners require the capital from their equity in a home sale in order to make a down payment on their next home. Selling first provides that capital and removes the discomfort for sellers who would prefer not to own two homes (and be responsible for two mortgages) at the same time, even just for a few days. Most Americans can’t afford — or can’t qualify for — a mortgage to purchase their new home if they have not sold their old home prior to the purchase of the new one.

2. Enjoy The Luxury Of Time

Imagine the scenario of selling a home and moving into a rental property. There’s no mortgage to deal with and no real pressure to buy in a hurry. While there is certainly stress that comes with an intermediate move, the trade-off allows for plenty of time to leisurely look at homes, decide what’s important in a next home and to wait for just the right one to come along — and then, to negotiate the best deal. By contrast, if you buy before selling, both eagerness and stress will likely come into play and motivate a speedy sale, putting buyers at risk of not getting the best value out of their move.

3. Have More Control In The Sales Process

Along the same lines, when selling first, there’s no particular need to accept the first offer that comes available — because at the end of the day, there’s already (or rather, still) a place to live. The ability to wait for the perfect offer allows those who sell first to command a higher sales price when the time comes.

4. Be Able To Make A Contingent Offer

An option that is not always available to sellers is the ability to make an offer contingent on concurrent closing. Every traditional transaction contains multiple contingencies. In the simplest terms, a contingency is a term in the agreement where the sale of the home can be terminated if a specific condition is not met. In other words, a seller can effectively say to the buyer, “I am not obligated to sell to you or to move out until I’m able to buy the home I want.

This can be tremendously liberating. Not all buyers are willing, but it doesn’t hurt to make the request. The termination of the sale is without penalty if it’s called out as a contingency. It’s important to keep in mind that the riskiest contingency is the mortgage contingency. If the buyer fails to secure financing to purchase the home, then the sale falls through.

There are obviously a number of good reasons to sell first and then buy. While it can be tempting to impulsively purchase a home before the sales process on your current home has begun, it’s important to resist that urge and to consider the benefits and financial security that can come from being patient — and focus those efforts on selling first.

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