Should I Sell First or Buy First?

If purchasing a new home requires you to sell your existing home you will have to decide which to do first. In a perfect world your existing home could be sold and closed in the morning and your new home could be purchased and  closed in the afternoon. If the stars don’t align for you to achieve this all in one day you are left with two choices; Sell First or Buy First.

Sell First  or Buy First

Some folks opt to sell their existing home before they purchase a new home. If this is the case you will need a place to stay until you close on a new home. You will need to do some homework by checking resident hotels, apartment complexes, condominiums, townhouses, or homes that offer short-term or month to month rentals. Alternatively, you may want  to ask a close friend or relative to put you up for a short time. You will also need to gather competitive quotes from moving companies and storage units to hold your possessions.

Possible Pros of Selling FirstSell First or Buy First
Reduces Debt and Finance charges
Increases cash in hand
May temporarily illuminate Property Taxes
Improves your borrowing power
Frees you from purchasing your new home with a contingency to sell your existing home

Possible Cons of Selling First
Increases Moving Expenses
Increases Storage Expenses
Adds rental fees that do not increase  your equity
Increases the possibility of  missing out or a buyers market or extraordinary deal you have found

Buying contingent on Selling First
If  you need to sell your existing home first but want to take advantage of a buying opportunity there is an alternative. You may be able to buy contingent upon selling your existing home first.  This contingency clause will protect you from not having to close on the purchase of a new home until you have successfully sold your existing home, but does come with come risks and limitations.  A Seller accepting your contingent contract offer will usually require a “kick out clause” giving the Seller an option to cancel the contract if you don’t sell your existing home within a specific time period. In addition, the Seller will usually retain the right to continue marketing the property as “Contingent” and/or “Contract Pending” and may receive subsequent purchase offers for a  “back-up offer” and/or a “first right of refusal offer”.

A “back-up offer “ only clause will allow the Seller to accept subsequent offers as a backup in case you do not sell your existing home or find alternative funding within the specified time.

A “Right of first Refusal” clause will allow the Seller to receive subsequent offers, but the Seller shall give you a final time dated chance to remove your contingency or secure alternative funding to proceed with the sale.

In either case, prior to accepting a subsequent offer Sellers are usually obligated to obtain the advice of legal counsel  unless  the acceptance is contingent on the termination of  the pre-existing  purchase contract.

Buy First  or Sell First

Some folks opt to purchase a new home  before they sell their existing home for various reasons. Perhaps you want to take advantage of a significant buyers market or an extraordinary opportunity. You can always make an offer to purchase with a contingency clause that makes the entire transaction dependent on a successful sale of your existing home. However, a contingent offer does have  some risks. An offer with a contingency clause may be rejected by the seller. If your offer has a contingency clause the seller may continue to strongly solicit other offers which increases the chance that home will be sold to someone else. In any case, it’s something to consider when you weigh all of  your options.

Possible Pros of Buying First
You may be able to take advantage of a buyers market
You may be able to take advantage of an extraordinary deal you have found
Piece of mind that you are first in line for the home

Possible Cons of Buying First
Increases Debt and Finance Charges
Increases Utility Expenses
Increases Property Taxes
May require a Bridge Loan

Bridge Loan
If don’t have sufficient liquid funds to carry both homes, you may want to get a bridge loan to help you do so. If you can’t get a bridge loan from a relative or friend you can turn to a Financial Lender. To secure a  bridge loan from a financial lender you will need to have sufficient equity in your present home to use as collateral . The existing home shall be appraised. Generally the Lender will lend you no more than 80% of the appraised value. This is known as the Loan-to-value-Ratio, or “LTV”.

The duration of the Bridge Loan will be either Closed or Open. A Closed Bridge Loan means that the funds are only available for a pre-determined length of time. While an open bridge loan means there’s no fixed payoff date, but there may be a required payoff after a specified period of time. Typically, bridge loans are taken out for a period of two weeks to three years (pending the arrangement of larger or longer-term financing). When the next stage of financing becomes available, funds from the new financing are generally used to “take out” (pay back) the bridge loan.