Let’s learn How to Buy and Sell a Home at the Same Time.
Do you remember when you were a first-time home buyer? In hindsight, what a simple time that was. After all, it’s so much easier to buy a home when you aren’t carrying another mortgage at the same time! However, all it takes is a little extra planning and education to learn how to buy and sell a home at the same time, with as little stress as possible.
Eventually the time comes to buy your second home. Let’s call you a “second-time home buyer!” Clever, I know...
As you move from the title of “first-time home buyer” to our ohh so cleverly titled “second-time home buyer”, be aware that things are about to get a bit more tricky. Unless you’re planning to keep your first home as an investment, (most likely as a rental property), you’ll probably need to sell your home so that you can buy the next one. As you might imagine, this can make the process just a bit more stressful and complicated. Buying a home is stressful enough, but I’ve got your back!
I’ll lay it all out for you, to help you successfully buy and sell a home at the same time, with as little stress as humanly possible.
Some people who aren’t in a huge hurry will actually buy a new house, move into it, and then deal with selling their old home after things have calmed down.
I’ve actually just recently helped some sellers in Whangarei to do just that, and they would tell you it worked out great. But for the vast majority of people, that’s just not realistic, or financially feasible. Not only would you be on the hook for paying two mortgages (or none if you’re lucky!!!), but hanging onto that original mortgage could hinder your ability to qualify for that new mortgage.
Then there’s the possibility that sellers may not see you as well-qualified buyers unless your home was already on the market, and ideally Under Contract. It’s dumb, but some sellers and their agent may read more into the situation than they should and perceive that you couldn’t actually get the new mortgage without selling your current home first.
It’s all good though! Learning to buy and sell a home at the same time is absolutely possible. It’s done all the time! But… you still need to make sure that you have experienced people on your side helping to facilitate both sales. For most people, buying and selling a home simultaneously is the only option. This is what you need to know to ensure that the sale, and the purchase go as smoothly as possible. Timing and coordination is KEY!
Know your local real estate market.
Before you jump in head first and start searching for a new home, or put your current home up for sale, make sure that you have a solid understanding of the housing market in your area, as well as the area where you’re buying the next home. Is it a Buyers market or a Sellers market? Which direction is the market tracking? How are interest rates trending?
Really take the time to learn and prepare. I know what you’re probably thinking… “But Paul, I’m not a real estate expert.” Don’t worry- you’re not on your own. That’s exactly why you’re going to find a proven, knowledgeable, local real estate person (me!) with actual experience coordinating a simultaneous sale and purchase successfully. That’s my job! Now, with not one, but two transactions at stake here, this is not the time to hire Cousin Billy who just got his real estate license last month. Promise me… no hiring unproven, newbie friends or family members.
Ok… well, you get the point.
Now you also need to find a back-up home to purchase, just in case. Let’s call it your Plan B. That way, you’re much less likely to screw yourself over if your Plan A purchase falls through for whatever reason. We sure as hell don’t want your newly sold home to leave you homeless. We’ll discuss your options later on in case this does happen.
Your Agent (who is a real Pro, remember?) shouldn’t need to be told to “price your old home to sell,” so it doesn’t sit on the market for too long. But if you feel you need a little extra “assurance”, you can hire an appraiser. Honestly though, an appraiser is just going to give you his or her opinion on what the home is worth. That’s all an appraisal is - an opinion. As long as your agent knows what they’re doing, you can save yourself a few hundred bucks. Now is not the time for pushing for a few thousand bucks more: Sitting on the market for two extra months because you couldn’t suck it up and price the house to sell simply means that you’ll be paying both mortgages for two extra months… two excruciatingly long months…
Plan your timing carefully…
Should you buy first, then sell—or vice versa? Both have their risks and rewards. Believe it or not, many agents have differing opinions on this. Selling first makes getting the next mortgage easier, but it also means that you will need to find a temporary place to live until you settle on your home purchase. Buying first means moving will be easier, but it also affects your debt-to-income ratio, which usually makes it more difficult to qualify for a new mortgage… not to mention that it sucks to be on the hook for two mortgage payments each month.
Think of it like walking a tightrope. Not just with your timing and scheduling, but your finances too. When deciding whether you should sell or buy first, please try to not focus only about the ease of moving. Think past the convenience of moving once and ask yourself “Can I handle paying two mortgages for a month or two?” You also need to consider what happens if your home is overpriced and takes longer than expected to sell, and for less money than you were hoping. Obviously we’re not planning for that to happen, but it would be foolish to not at least consider the negative. It’s better to be prepared and not need to be, than to need to be and not be prepared.
Whichever way you decide to go, just make sure that you’re willing to live with the consequences: having to store your stuff and rent temporarily, or dealing with the added financial stress of paying two mortgages.
Don’t fully rely on just good timing…
When buying a new home and selling your home simultaneously, there are so many moving parts and so many external things that can affect the timing of the plan. I have still not seen a simultaneous buy and sell go 100% according to plan. There’s always something that comes up. (Spoiler Alert: even still, most of the time it all works out. So don’t worry!)
Remember, you’re not the only one involved in this equation. There’s still the good people on the other side of the transaction. Even though everything might seem to be going smoothly from your side of things, the other side will also have their own circumstances and situation that can affect your side of the deal- although in fairness, that’s not always a negative. Settlements get delayed for one reason or another. The people buying your home might have delays getting their mortgage; the home building inspector and/or appraiser they hire may uncover issues that must be fixed before you can sell the home to them, and likewise on the home you are buying.
You’re also reliant on the seller of the home that you’re buying to be ready to move in tandem with the buyer of your house. Common sense tells you that issues can and will come along. It’s your agent’s job to be prepared for all of those, and then prepare you for them as well. It’s all about rolling with the punches. Think of it like a roller coaster ride- there will be ups and downs.
Even if you’re selling your home first and are mentally prepared to rent or find an extended stay somewhere else while buying, understand and accept that even the best plans can get stuffed up, and you might (although unlikely) have to pay both mortgages. Mentally preparing yourself ahead of time for this remote possibility will ensure a smoother transition and help reduce your stress dramatically. Surprises are where the stress comes from. If you prepare mentally ahead of time, the stress will be minimal.
Know your option$
For those who decide to sell first, the process will be pretty straightforward, aside from the additional hassle and cost of renting between the sale and your subsequent purchase. However, there is an excellent option called a “rent back agreement” where you can negotiate with the new buyers of your home to stay in the home for an extra 30-90 days or so after the sale settles. That way, you’ll only need to move once!
Getting the buyers to agree is the tough part, and sometimes they just flat out can’t do it because of their own timetable and circumstances. Sometimes they can’t be flexible. To get them on board, you’ll want to negotiate this at the time of their offer, so everyone will know right from the get go what is going to take place and happen. You can offer the buyers a lower purchase price and/or pay them rent for the extra time you’ll need to stay in the home. This can relieve some of the pressure of finding a new home, giving you additional time to go house hunting, all while staying in your home and not needing to move twice. Make sure your agent has experience with “rent backs” and with drafting the right paperwork to protect you and the buyers as well. Every detail of the rent back must be in writing to avoid any confusion and potential conflicts. Think of it as an actual lease agreement… because it is. It’s just a short term one.
Now if you’re buying first, talk to your agent about how to decrease your financial burden and risk. This is by far the most popular option:
Subject to house sale: As part of the Offer to Purchase, Buyers can request that their new home purchase be dependent on the successful sale of their old home. In Whangarei, and in this current market, this is actually quite common.
If you’re looking for a home to buy in a competitive market (Seller’s market), this may not be realistic. With demand higher than supply, Sellers know that they don’t need to accept an offer with this contingency; however, if the seller of the home you’re buying has not had much interest from Buyers, this may be a great “win-win” for everyone involved. Of course you’ll need to convince them that your home will sell quickly. They’ll most likely require that your home is at least Under Contract before they entertain this scenario.
Chill out! Don’t let fear affect your decision making. Transacting real estate is what I do everyday, and I’m here to help you with all of these different situations.
If your home has already sold but you still haven’t found a new place to live, don’t let anxiety and fear force you to make bad decisions. I recommend that my clients plan on a short-term rental from the beginning, just in case. Then if it’s needed, they won’t feel nearly as stressed and won’t be pushed into doing something that they wouldn’t normally do with a clear, unpressured mind.
Found the perfect home right on schedule? Fan-freakin-tastic! Please, don’t feel like you need to compromise on things that are important to you just because you need to find a home. On the flipside, don’t accept an offer that you feel is too low just because you and your finances are stressed by paying two mortgages. If you have a temporary place to stay already arranged, you’re less likely to compromise and make bad decisions.
Worst Case Scenario?
Certainly, selling and buying a house simultaneously will be stressful—but carefully considering and planning for the risks and hurdles can mitigate the stress. After all, the worst case scenario is that you’ll sell your home before you have another home to move into. You may have to temporarily stay with a friend or family member, or ideally “rent back” your home from the Buyer if they allow it. Is it ideal? No. Is it the end of the world? Of course not...
You Can Do This!
It’s totally normal to feel nervous about managing so many moving parts all at once. You are dealing with big transactions here, and you are talking about your home. Of course you want it to go well. Honestly, it would be weird if you weren’t nervous.
Fortunately, it usually goes pretty smoothly. But even if there is a gap between your home sale and the purchase of your new home, you can always rent temporary housing, stay with friends or family, or rent back. It may not be the ideal situation, but it’s also not the worst!
Years from now, when you’re sitting comfortably in your dream home in that perfect location, you’ll probably look back on this experience and laugh!
Need help with any of that? Just give me a call. 021 606 460. Cheers. Paul
Helpful and interesting info from Paul, and Harcourts to help you with your property journey.