Buy or sell first?
Are you thinking of selling your present home and buying another one? Have you no idea how to figure out what to do first? You aren't alone. Sam Schneiderman, Broker-owner of Greater Boston Home Team helps you unravel the problem. BTW, today is his one-year anniversary on Boston.com Real Estate Now.
One of the biggest challenges faced when its time to move on from a current home is whether to should buy before selling or sell before buying. Another option is to sell and rent until a new home can be found and bought.Personal preferences aside, the determining factors are the ability to qualify for two mortgages (or get a “bridge loan” if one can be found) and market conditions where the homes are located. (A “bridge loan” is secured by the current home which allows the owners to use the equity to buy their next home and repay the bridge loan when the first house sells. Recently, home equity loans have been used instead when borrowers can work around limiting resale rules; lenders won’t usually grant equity loans on homes for sale.)
Without the ability or desire to carry two mortgages, the current house must be sold before the next home is bought. The sale could close days, weeks or just a few minutes before the new home is purchased. This type of sell/buy transaction is not for the faint-hearted and definitely not for the do-it-yourselfer. Good legal representation is essential and, in my biased opinion, an agent experienced with such simultaneous sell/buy transactions is valuable to reduce the risk and stress. If the homes are in different markets, it’s best to have the agents and/or attorneys involved in both transactions work out the timing together so that contingencies fall in the correct order.
People that are nervous about purchasing another home before their current home sells can try to find a replacement property and negotiate the purchase subject to the sale of their current home. Aside from the risk of losing the cost of inspection and legal fees for the P+S, that takes the risk off of the buyers if they can’t sell their current home and puts the risk on the sellers. If the offer is appealing and market conditions favor buyers more than sellers, sellers might concede to a “kick-out clause” (see last week’s blog) to reduce their risk. The buyer that thinks their home will sell fast benefits by knowing that if they can get their home under contract, they have someplace to go.Those that are nervous about selling their current home without having someplace to go often market their homes subject to the seller finding suitable housing, signing a P+S on a property or purchasing another property. That’s risky for buyers because they risk paying for inspections and legal fees if the seller cannot satisfy his contingencies. While not often used for this purpose, a buyer can reduce risk with a kick-out clause that stipulates that if the buyer finds another property before the seller satisfies contingencies, the buyer can terminate the transaction and pursue another property.
If you’ve had any experience with simultaneously selling and buying, how did it work for you?
