The answer to this chicken-or-egg dilemma can be summarized in three words: “It all depends.”
The determining factors are these two things:
- Your finances, and
- Prevailing market conditions.
Buying Before You Sell
In a competitive environment, with continued home-value appreciation like the one prevailing in the Bay Area, it makes sense to buy before you sell.
You won’t have to move twice, won’t be pressured to quickly pick a house that may not exactly be what you want, and you’ll be able to vacate your home and properly stage it (“Sellers: Owner-Occupied Vs. Vacant Homes”) to appeal to a greater number of buyers.
If you don’t have the cash reserves to make the down payment on your new home and temporarily cover two mortgages, you can use the built-up equity on your existing home to take out a line of credit, or HELOC, in which a lender promises to advance you a particular amount which you can draw upon as needed.
This type of loan is different from your primary mortgage in that you don’t get a lump sum. Instead, the loan acts as an on-call line of credit from which you can take out sums at any time during the withdrawal period. You are only required to pay interest until the end of the term.
However, note that the interest rate is almost always variable.
Selling Before You Buy
What if you have neither the cash nor the equity?
- Sell with contingencies.
Homeowners can sell their properties with contingencies built into their contracts, stating that they must be able to buy a replacement house, or the deal is off. The time limit is usually between 30 and 60 days.
However, a contingent agreement may include a kick-out clause allowing the seller to continue showing the house and “kick out” the buyer if the seller receives an offer from another buyer without a home sale contingency. Sellers are likely to view contingent offers as less attractive than those with no strings attached.
All things being equal in terms of the amount of the offer and credit qualifications, a would-be buyer making a contingent offer is likely to lose out if the seller also has an offer on the table from someone who is ready to fully commit.
- Implement a rent-back agreement.
A rent-back agreement essentially lets you become the new buyer’s temporary tenant, giving you extra time to live in your home after closing. It doesn’t last for long, but it will give you a chance to close on your new home and pack up for the big move.
Of course, just like the previous contingency option, a rent-back requirement will likely get fewer offers.
- Sell and hope for the best.
Since contingencies and rent-back agreements may place you at a disadvantage compared to other buyers, the alternative is to sell without conditional clauses. If you don’t have family or friends you can move in with in the meantime, then you can temporarily rent elsewhere.
This option can buy you plenty of time to focus on searching for your next home. Julie and her team can help with this too, as we’ve helped many of our satisfied clients find temporary housing while in between homes.
