How to Help a Client that is Selling and Buying a House

In a hot real estate market, many sellers are looking to make a move. Often times agents are asked, “When selling and buying a house, which should I do first?” The answer depends on each seller’s specific preferences and needs; attention to detail and knowledge are two of our Keys to Real Estate Agent Success. There are also a few threshold items to consider. What is the market like in your area? Does your client have the ability to carry two mortgages? Can your client tolerate more risk in exchange for convenience? Below are the pros and cons of whether to buy first and sell later or the other way around:

Buy First and Sell Later

Pros:

• Your client will have the luxury to find the exact home they want, without the added pressure of finding immediate housing.
• Your client can take time fix up their new home (fresh paint, new carpet, window dressings, etc.).  This would also be a good time to undertake significant remodeling so as to not inconvenience the family through stressful reconstruction while living in the home.
• Your client can fix up the home they are selling in an effort to achieve maximum return.
• Your client won’t have to put belongings into storage or find temporary housing.

Cons:

• Your client will have to carry two mortgages at once.
• If your client does not have cash on hand for the down payment, your client may need to get a short term bridge loan or swing loan to cover the down payment on their new home until their existing home sells.
• The monthly burden of carrying two mortgages may cause your client to sell for less than the property is worth.

 Sell First and Buy Later

Pros:

• Your client will not undergo the financial stress of carrying two mortgages at the same time or the burden of making payments on a bridge or swing loan.
• Your client will not undergo the financial stress of carrying two mortgages at the same time or the burden of making payments on a bridge or swing loan.
• Your client will know exactly how much money they have for a down payment on a new home.
• Your client will not need a home sale contingency which might make their offer more attractive to other sellers.

Cons:

• Your client will have to put their personal belongings into storage and/or move into temporary housing.  This can be stressful and expensive.
• Your client will have to put their personal belongings into storage and/or move into temporary housing.  This can be stressful and expensive.
• Your client won’t have the luxury to wait for the perfect house to go on the market.• Your client’s need to buy quickly may compromise their ability to negotiate a good price.

Sell & Buy Simultaneously

Pros:

• If it works out, this may be a perfect option for making a convenient move from one home to another.
• Your client won’t have to worry about multiple mortgage payments or putting their items in storage.

Cons:

• In a hot market, a seller may not accept your client’s offer if it has a home sale contingency.
• If something falls through on the sell side, it may compromise the ability of your client to close on the buy side or vice versa.
• It is difficult to align the closing dates for multiple closings.

Some options for your client to consider:

• Are pre or post-closing possession agreements an option?  This would allow your client to either remain in the home they are selling after closing or alternatively, move into the home they are buying prior to closing.
• Negotiate a quick closing (say 45 days) on the sale of your client’s home and a longer closing (say 60 or 90 days) on the purchase of their new home.
• Include an escape clause in the purchase contract (for the sell or buy) allowing your client to terminate should something go wrong with either of the transactions.

The decision is based foremost on the market, and that’s not just with selling and buying a house.  If it is a hot market and your client’s home is likely to sell quickly, then there may be list risk with buying first and selling later.  Alternatively, if your client is selling a high priced or unique home that is not as likely to sell quickly, then the safest option may be to sell first and then buy.  It all comes down to the market and the tolerance your client has for both the pros and cons.  The best thing you can do is to listen to your client’s preferences and then provide the pros, cons, and options to help them navigate two successful transactions.

To learn more, consider taking a Continuing Education course at the Hondros College.