Yesterday I was talking with a person that is looking to downsize and sell their 5 bedroom home and buy a 2 bedroom home. We talked about a lot of details, but as a South Minneapolis REALTOR, I asked him this question:
Do you need to SELL your home in order to BUY a new home? Or can you BUY first and SELL later?
There are advantages and disadvantages to both and in this short blog post, I'll cover both sides.
SELL before you BUY
Selling your existing home before you buy your next home has one strong advantage: You can purchase your next home "non-contingent." What does that mean? Buying a home non-contingent means that you can purchase a home without selling your existing home OR you can purchase subject to the sale of your home AND you can show that your home is already sold. This situation makes for a stronger offer, and both have potential downsides.
If you buy your next home non-contingent, you could end up potentially owning two homes, if the sale of your home falls through for some reason. But if you are confident that your home will close, you can purchase a home non contingent.
OR when you purchase subject to the sale of your home
Purchase the next home non-contingent, you have a home to sell, but that doesn't matter to you
This makes for the strongest offer when you are purchasing your next home. The seller of the home you are purchasing will see this as a straight out purchase. You can do this if you don't currently own a home, or you already sold your home but if it fell apart you still would continue to purchase the next home, or you don't mind the potential of carrying two mortgages for a short while.
Purchase the next home non-contingent, your home is already sold
This is a pretty good offer as well, but in this case, there is the potential for your home sale to fall apart, but your purchase to remain enforceable. This means that you may have the potential for two mortgages for a short period of time, while you try to get your existing home sold again.
Purchase the next home subject to the sale of your existing home, and it is already sold
With this option, your offer isn't quite as strong, because the seller of the home you are purchasing has to depend on your home closing. In this case, one deal that falls apart can affect another transaction. This is what we call a chain reaction. I've seen some deals that have 7 transactions all dependent on the previous transaction closing. Any little hiccup can derail the downstream transactions. But with luck and skill, most transactions are smooth. This is usually due to hard-working individuals that go above and beyond the call of duty to make sure a transaction closes.
Purchase the next home subject to the sale of your existing home and it is currently on the market
In this case, the seller's agent may request the address and price of your home, and the compareables that you used to price your home. They may even set up a showing on your home. This is because they are trying to ascertain if you have realistically priced your home to sell. They don't want to accept your offer with it being contingent on the sale of your home, if your home won't sell due to unrealistic circumstances whether that is price, or condition, or location, or other factors.
Purchase the next home subject to the sale of your existing home and it is not yet on the market