The 'Chicken and the Egg' of Real Estate: Buy First, or Sell First?

"Should I buy first, or sell first? I don't know what to do." It's a commonly asked question, without a definitive answer.

The 'Chicken and the Egg' of Real Estate: Buy First, or Sell First? Close
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The 'Chicken and the Egg' of Real Estate: Buy First, or Sell First?

Posted by Steve Schuck on Thursday, July 27th, 2017 at 4:59pm.

"Should I buy first, or sell first? I don't know what to do."

It's a commonly asked question, without a definitive answer.

Many people find themselves in this real estate predicament, reminiscent of the "chicken or the egg" quandary. Unfortunately, there's no across-the-board answer that works for everyone. Circumstances, finances, and many other variables can make a difference in determining which scenario will be best for you.

Buying First -- If you buy a new home first, you may find yourself in the tough situation of owning two homes, which means paying two mortgages, as well as all other expenses that come with home ownership. With any luck, your current home will sell quickly, solving the problem for you--however, there is no guarantee it will work out that way. If your house does not sell quickly, you may be forced to close on the sale of your new home, making you the proud owner of two homes you can't afford.

Selling First -- If you sell your home first, it opens up a whole new realm of possibilities--the best of which could mean selling your current home quickly, and falling in love with an ideal new home soon after, allowing you to close both sales in a reasonable amount of time. If you aren't lucky enough to have that situation happen to you, you could end up selling your current home before finding a new one, which could mean you are stuck having to put most of your expenses into storage and shacking up with friends or family. Either situation presents its own risks and uncertainties; that's why there are too many conditions involved to determine the perfect answer for the "should I buy first or sell first" question that would fit everyone.

So which do I recommend?  Generally speaking, there is less pressure and less risk involved in selling your current home first. Put your house on the market -- but at the same time, be out there house-hunting. As your house is being shown to potential buyers, you can be making yourself a short-list of strong contenders for a new home.

Plus, financially speaking, the majority of homebuyers will need the equity and profit from their current home in order to purchase a new home. The sale of your current home can help give you a substantial down payment, and will help you qualify for a better mortgage loan. For many reasons, this leaves most homebuyers no choice but to sell their current home first. Not all people--especially in the eyes of a bank--are qualified to hold two mortgages at once.

What about contingency offers? While your current home is on the market, you can feel free to write a contingency offer for a new home you find while house hunting. However, whether or not it works for you remains up to the seller of the new home. You should keep in mind that you will pay a premium with a contingency offer--that is, if the seller even gives it a second thought. Many owners may be reluctant to accept a contingency offer if they think there is a good chance they will get other offers. In these cases, you may be tempted to lower the price on your current home in order to help it sell faster so that you can close on it and move forward with buying the new home. Therefore, we always say, be cautious. You can take the comfort in knowing that you can write a contingency offer for a new home anytime you like while your home is on the market, but don't let your eagerness to nab a new home let you lose sight of the true value of your current home.

The market seems really robust--so should I just run out and buy first? With the economy still on the rebound, and interest rates still fairly low, many people are entertaining the thought of running out and buying a new home first before selling their current home. However, the market, like the economy, is still in recovery mode--so don't let that make you too confident about your buying and selling possibilities. Consult with an experienced Realtor like us at the Schuck Group to give you a realistic perspective on your prospects.

Everything is circumstantial -- With interest rates still relatively low, the D.C. housing market is moving very quickly these days. That means that homebuyers are more focused on buying than selling. Motivated buyers are being recommended to obtain a mortgage commitment that is not contingent upon selling their current home, in order to dive in to this fast-paced buyer's market. Homebuyers are realizing that even in a strong market, the selling end of a transaction can drag on, potentially leaving them in the dust when it comes to landing a good deal on a new home. Either way, the choice of buying or selling first is entirely, 100-percent circumstantial, and financially dependent on each individual buyer. Circumstances may put you in a position where you have to sell first in order to secure the money to buy. Or, they may have you in a position where you have to buy quickly because of a job relocation. In today's market, there are advantages and disadvantages to each scenario--buying first and plunging into the hot buyer's market, or selling first and having the relief of knowing that you won't be trapped paying two mortgages at once.

As we said before, most people find it easier to sell their current home first and use some of the equity you built up to put toward a down payment on a new home. Nonetheless, it is still a decision only you the buyer can make, given your unique circumstances and the state of your finances. However, we are happy to consult with you and help you make the decision given our expertise in the local market, so please contact us if we might be able to help!

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