Breaking it down: selling and buying a home at the same time

Buying and selling at the same time takes a little more foresight and planning than a one-way sale, but it's totally doable. If you're looking to sell your existing home and buy a new one, here are a few ways to make this arrangement work:

Buying first, then selling

Sometimes you fall in love and find your next home early on in your house hunt. But when you still have a home to sell, buying can be a little trickier. As the buyer, you do have to be willing to take a on a certain amount of financial risk. Here are your options:

Make an offer with a home sale contingency

The home sale contingency used to be a very popular method for buying and selling at the same time. With it, buyers would make the deal contingent on the sale of their current home. If they sold by a certain date, the transaction would move forward. If not, the deal would dissolve. In the meantime, the seller was also free to field other potential offers.

Unfortunately, in this competitive market, it’s not used as much any more. The uncertainty of this contingency makes it unattractive to sellers, especially if there are more solid options on the table.

As the buyer, you’re still free to include it in your offer, if you wish, but, you should be aware that it might not put you in the strongest bargaining position.

Get a bridge loan

A bridge loan is a short-term loan option that can help you buy without having to utilize a home sale contingency. These loans allow you to pay off any mortgage debt on your existing property, plus put some excess funds toward the down payment on your new home. Then, once your current home sells, you’d use the funds from that settlement to pay off the bridge loan.

Though it may sound like the perfect solution, bear in mind that bridge loans come with their own set of risk.

Typically, these loans have higher interest rates than regular home equity loans. There’s also the risk that one of your transactions will not go according to plan. If that happens, you’ll still be responsible for paying back the loan.

If you decide to go this route, be sure to read the terms and conditions on the loan carefully, so you know exactly what you’re getting into before you sign on the dotted line.

Hold two properties at once

Holding both properties while you wait for the old one to sell can be a stretch financially, but if you can afford it, doing so will allow you to submit offers without having utilize the home sale contingency or accrue interest on a new loan.

However, before you commit yourself to paying two sets of bills, we suggest you to speak to your financial advisor to determine whether or not this is a viable option for you.

Selling first, then buying

When you sell your home before buying another one, you’ll more than likely have the funds to confidently finance your new property. That said, you may have to be willing to be endure a few inconveniences such as moving twice in a short period of time.

If you’re open to it, here’s how to make it work:

Extend your closing date

Sometimes the stars will align and you’ll be able to find a new home around the same time your old one goes under contract and move all in one go. To do this, you should bring your concerns up to the agent who assists you in putting your offer together.

Remember that offer writing is a negotiation, so if sticking to a particular closing date is important to you, you may want to stay flexible with the other components in order to put yourself in the best bargaining position.

Ask for a rent back

A rent back is exactly as it sounds. In this situation, you'd ask the buyer-now-owner of your previous home to include a contingency in their offer that allows you to rent the home from them until you’re ready to move.

Keep in mind that your buyer may not be open to this arrangement. You can always ask, but it’s a good idea to have a backup plan in place in case they say no. If they are up for it, you’ll want to have a have a binding rental agreement drawn up between the two of you, so things don’t get messy down the road.

Get a short-term rental

Lastly, you have the option of going out and getting a short-term rental that will run from the date of your previous home closing to the second one. The biggest consideration here is cost. Often, short-term rentals can add up. You may also need to arrange a storage option to house some of your belongings in the meantime.

The bottom line

As you can see, each of these options has its own unique sets of pros and cons. You’ll want to weigh your decision carefully to ensure that you pick the one that works best for you and your family and be aware of the implications.

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