Should you buy your next home or sell your current home first?
The concern for many homeowners looking to move up or downsize is: “Can we find another home after we sell if inventory is tight?” This is the Catch-22 of a strong housing market, however there are a few options that allow a seller to capitalize on a market peak while not compromising their future plans.
The first option that many sellers initially look past is renting after the sale of their home while they look for their next property. This option offers the sellers flexibility, and with the expansion of AirBnB and VRBO there are more options than ever for a short or long term rental. Shopping for your next home after the close of your first residence also gives the buyer greater liquidity which can be the difference between them and a slightly less qualified buyer in an incredibly competitive market.
Since sellers are in the position of negotiating power during a transaction they can write in their sale contract that a buyer must offer them a “lease back” at closing. This is simply a provision stating a period of time, ie: 60 or 90 days, that the sellers will remain in their home after the closing at a set rate. This option also offers the benefit of increased liquidity and a more comfortable transition for the seller.
The third option is the most efficient of time but requires quick action on behalf of the sellers. The sellers can “pre-shop” or tour several options that might meet their criteria before they are ready to make an offer. Once those properties go under agreement they can use that information to test the competition and see where their budget needs to be to get everything they want. After a tight gameplan is established they can concurrently list their residence and begin actively bidding on a new home.
The final option is shopping before selling, and there are a couple ways to go this route. A seller could make an offer on a new home, then list their home and include a provision in the sale of their home that the deal is contingent on them finding suitable housing. In this way the sale of their home is contingent on the purchase of their new home going through. This offers the seller the best flexibility and protection, however even in a hot market this can negatively impact the salability of their home. This is one provision that many buyers are wary of since it tips the scales so far in the seller’s favor.
There is a similar provision that can be included on the buyer side as a different strategy. This is a line included in the offer of a new home stating that the offer is contingent on the sale of the former home. This makes the purchase of the new home contingent on the sale of the first home. While this strategy also offers the sellers great protection and flexibility, this is not typically recommended in a competitive market as it also greatly reduces the strength of any offer and makes getting an offer accepted much more challenging.
A highly recommended course of action when shopping before selling is identifying a new property with a listing plan for the first property in place already. Once an offer is accepted on a new home, the listing can go live on the first property and if an offer is accepted quickly on the listing, then both transactions can proceed concurrently. This path does require the sellers’ ability to potentially purchase before the sale concludes, so they should be financially comfortable to float during this procedure.
Of all of the above paths to getting into your new home, a highly skilled agent can help you determine which one is right for you and ensure a smooth series of transactions.