Issue Date: May 17, 2006

To Buy or Sell First, That is the Question

By Jody Zink
Licensed Realtor in Ohio & Michigan

The 'once in a lifetime' chance for the home you've always wanted magically presents itself. Plus, it's affordable. That'd all be fine and good except that there's an existing house, ongoing mortgage payments on that house and cash needed for the down payment to close on the new house.

For homeowners considering trading up or down-sizing, the decision whether to buy first or sell first is rarely an easy one. Buy first and you may run the risk of getting stuck with two house payments. Sell first, and you may wind up having to move twice. Or worse yet--in a seller's market, risk moving in with the in-laws and sharing Captain Crunch, toothpaste and a thermostat.

The ideal scenario is to buy and sell simultaneously. Easy! Unfortunately, there’s no guarantee of timing that. The good news? We've got options. And different circumstances warrant different strategies. Two factors will likely play into your decision: the current real estate market and the reality of your financial situation.

Selling first is typically less stressful, especially in a buyer’s market. You’ll also have a better idea of how much money you’ll have for the new house after the old one sells. You avoid carrying more than one mortgage and you don’t need a home sale contingency, which can make negotiating easier. The down side to selling first is scrambling to find a new house that suits you. If possible, finding a place to rent in the meantime might be smart. That way you relieve pressure of rushing into something or even settling for something less-than-ideal.

Pursuing the buy-first scenario, many people use a home-equity line of credit as a bridge for the new down payment. To qualify for a bridge loan, however, you must have income that can cover the cost of two simultaneous mortgages. The stress of carrying all three might force you jump at a low-ball offer. Such offers can be expected once buyers see your empty house and realize you must sell quickly.

Now if you have the money to make those payments, the pressure is off. But what if it doesn’t immediately sell? How long are you prepared to make those payments? One option might be to temporarily rent out your home. And keep trying to sell if the sale will produce a profit. An online broker recently surveyed 550 home owners who'd gone through the bridging process since 2001. 70 percent said they were worried. Overestimating a home's re-sale value and underestimating the length of the selling process can be two serious mistakes.

If you must sell before buying, have your Realtor make the offer to buy contingent on selling your old home. It's worth noting this doesn't exactly put you in the catbird seat. Contingencies can limit your negotiating power. Many sellers wouldn't consider it because it ties them up with an offer that's by no means a sure thing. But consider this: When listing your home to sell, insert a provision to make the sale dependent on reasonable time to find a new home and be ready to act. First time buyers are flexible and may even be grateful to have more time to give landlords more notice and avoid lease-breeching penalties. Another homeowner may bite on this, too. Especially, if they need some leeway to resolve their own real estate Catch 22.

To buy or sell first? The answer is likely as unique as you are.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.