Imagine, if you will. You love your home, but unfortunately, you have outgrown it. It is time to move up to something bigger and in a more substantial neighborhood. You don’t want to own two homes, or at least it doesn’t make financial sense for you to have them both. How should you go about selling one home while buying another?
I’ll explain.
Selling One Property and Buying Another
Selling a property to buy another is one of the most nerve-wracking real estate moves most people will ever do. This is true for both investment properties and your personal residence. In many ways, it is easier for investment properties since you don’t live there.
Here we are going to focus more on selling your principal residence and buying your next home. Working through two deals can get tricky, but it’s successfully done all the time. You can do it too using the right approach for your situation.
Of course, we recommend seeking advice from a qualified real estate professional to guide you through the process. This is where an experienced pro is worth their weight in gold.
Four Ways to Sell Your Home and Buy Another
There are four basic approaches used to sell your home and buy another.
Buy and Close then Sell
The Buy and Close then Sell approach may be the best way to go from owning one property to another. You can shop around for your ideal next home while sprucing up your current one. When you find the home you want to buy, make a strong offer that is not contingent on selling the home you live in. This helps you secure the best possible price.
Once you are fully out of your old home, you can finish preparing it for sale. You can even have it professionally staged, enabling you to achieve the highest possible price in the least amount of time.
The downside of this approach is that most people don’t have the financial resources. There is the expense of owning two properties at the same time, and you may need the proceeds from the sale of your current property for the down payment on your next one.
There are loan products where you can borrow the down payment for your next home using the equity in your current home, but they are expensive. You also have the unknown of how much your old home will actually sell for and how long it will take to sell.
Even with the drawbacks of this method, it is usually the least stressful and the way to get the best buy on your next home while achieving a maximum price for your current one. Unfortunately, most people are not in this position.
Buy Contingent on Selling
The Buy Contingent on Selling approach is the first method most buyers think about using. The idea is that you make an offer to buy contingent on selling your current property. It may initially sound like a good idea, but there is a significant downside.
The problem with this approach is that when you do make an offer to buy your next home, it will be unattractive to the seller. They would much rather go with a buyer who does not have to sell another property.
If you are going to try to buy this way, you need to understand that your offer will be at a distinct disadvantage. Of course, some sellers will accept an offer contingent on the sale of the buyer’s property if the seller is able to achieve a higher price or if the buyer’s property is close to closing.
Anyone considering this method needs to know that there is a big difference between an offer contingent on the sale of a buyer’s property where the property is about to close escrow and one where the property has not even been listed for sale.
If you are going to use this method, make sure you have the guidance of an experienced agent who understands everything that is involved.
Sell Contingent on Buying
The Sell Contingent on Buying is a little-known approach that can be used to move from one property to another. The idea is, you put your property on the market and make it contingent on finding your next home. Sellers will do this when they are afraid to list their home for sale and go into escrow before they have secured their next property.
One challenge to selling contingent on buying is that it makes the home you are trying to sell less attractive to buyers. They will most likely not want to wait around for you to find and negotiate the deal on your next home.
Another issue is that if you need the proceeds from your sale to close on your purchase, you will have to make your offer to buy contingent on that sale as well, which can complicate matters.
Technically speaking, you will not be able to sell contingent on closing escrow on your next home if you need the proceeds from the sale to close. You may be able to sell contingent on identifying, opening escrow, or even removing contingencies on your “up-leg”. You will just have to get everybody to agree.
These transactions can get complicated, and all parties involved should seek the advice of an experienced real estate professional.
Sell and Close Then Buy
The Sell and Close then Buy approach is probably the most common way to make a move. It is straight forward where: you sell the property you are in and then buy your next home using the proceeds from the sale for your next purchase.
There is the risk that you might have to move twice and do some kind of short-term rental while you finish your purchase. People can often avoid moving twice by negotiating an extended escrow and a contingency or some kind of seller rent-back.
If you are going to use this approach, it is imperative that you make sure there are potential homes that will work for you and verify you will qualify to buy before you sell your current home.
This is where you should seek the guidance of an experienced real estate professional. They can counsel you to come up with a plan and help you reduce the risks involved.
Some Practical Advice
Knowing the methods used to sell one home to buy another is an important first step. Just realize that you may plan on using one method and end up switching to another. Markets are different, and so is each person’s individual situation. Lots of people successfully sell their home and buy another. Stay flexible, seek the advice of a professional, and you will be able to do it too.
Bottom Line
There are four basic approaches you can use to sell your current home and buy your next.
- Buy and close escrow on your next home, then sell your old home: This way you get a good deal by making a strong offer on your next home without any selling contingencies. Then you can prepare your old home for sale, looking its best to get top dollar. This works great if you don’t need the proceeds from your current home to buy your next.
- Buy your next home contingent on selling your current one: This works great if the seller of your next home will agree to it. Most sellers will not accept this term unless your current home is close to closing or you agree to pay a premium.
- Sell your current home contingent on finding your next: This will require the buyer of your current home and usually the seller of your next home to agree to some kind of contingency, which will complicate both transactions.
- Sell your old home first, then buy the next one: There is a chance you might have to move twice, but you may be able to avoid doing so by coordinating with your next purchase or doing some kind of seller rent-back.
Every situation is different, so you may have to switch or combine methods. Seek the advice of a professional you trust, and you can do it too.
For Real Estate Advice
Thank you, and we hope that you found this helpful and informative. If you are looking for a real estate broker to guide you through the sales process or a reliable property management company to help you handle a rental property in Long Beach, Los Angeles, or Orange County, California, or you are just considering it and have a few questions about real estate, contact the Mike Dunfee Group today! We are happy to help.
Dunfee Real Estate Services, Inc. DRE # 02026232
