Selling Before Buying: Concurrent Closings
Reasons to Sell Before You Buy
Homeowners who are planning to move up often wrestle with the dilemma: "Should we sell our house before buying a home?" You'll find plenty of agents advising you to buy before you sell, but that's rarely in your best interest. It's in the agent's best interest because if you buy, you will need to sell, and the agent will be guaranteed two sales, regardless of how much it could cost you to do it this way.
If you decide to sell first and then buy but, say, your home doesn't sell or it attracts very low offers that you do not want to accept, the agent will get nothing. This is something to consider. It's no risk to you.
Of course, which comes first, the chicken or the egg depends on the market — whether it's a buyer's or a seller's market — and your personal motivation. However, for most sellers and buyers, the smart thing to do is to sell before you buy.
Most sellers who are intent on selling before buying a home, do it because they want to maximize the profit potential of their home. They don't want to be under pressure to feel forced to quickly dump their existing house so they can close on the new home. There are ways to schedule a concurrent closing, in addition to making the sale of your home contingent on finding a replacement home to buy.
The strategy you decide to employ will have a bearing on the type of real estate market in your locale. Buyers are much more willing to wait for a seller to find a replacement home in a seller's market than in a buyer's market.
Reasons to Sell First and Then Buy
- Ability to Negotiate. By selling first, you have the luxury of time. You don't have to take the first offer that comes along because you already have a place to live. It's called your home.
- Higher Sales Price. Sellers who aren't under pressure to sell often obtain higher sales prices because buyers realize the sellers are not desperate. Nothing yells "discount your offer" like a listing that reads: "seller motivated, bought another."
- Contingent on Concurrent Closing. By making the sale of your home contingent on closing concurrently with your new purchase, you have basically said to the buyer, "If I can't find the home I want to buy, I'm under no obligation to sell to you." You don't have to name the property address. You can simply state: "This sale contingent on closing concurrently with the purchase of seller's replacement home."
- In fairness, a smart buyer's agent won't let a buyer sign a contract with a contingency clause like that; however, I get away with inserting that clause because few agents understand its implication.
- Contingency Period. OK, let's say the buyer's agent is smart enough to strike a concurrent closing clause from the contract. The next best thing to ask for is a time period during which you are free to look for a replacement home. A contingency period will give you the right to cancel the contract during that time period if you so choose, which can range, on average, from 7 to 21 days.
- Renting After Closing. Some sellers who want to take their time to find the perfect home, that one-in-a-million, will often opt to rent after closing. If the buyer doesn't require immediate occupancy, the seller might rent back their own home for the amount of the buyer's new mortgage payment. Or the seller might move out, put their belongings into storage and rent a furnished, short-term apartment.