Which Came First, The Real Estate Chicken (Purchase) or the Egg (Sale)?
One of the more confounding logistical quandaries that can arise in Real Estate is the classic chicken or the egg paradigm: Does one sell a house before knowing where he is moving, or does one buy a new house without having his current one sold?
No doubt, the dilemma of which cap to doff first has vexed many a consumer. Selecting the correct course of action is dependent, like most things, on a variety of factors. For the sake of clarity, we will keep things simple.
If you have a boatload of equity in your current home, have flexibility with the ultimate selling price and have the financial wherewithal (cash in hand or the ability to obtain a new loan that is not conditional upon the sale of your home) to purchase a new home prior to selling your existing one, then you are the rare individual in the enviable position to call your shot. To eliminate the prospects of a double move and the fear of obligating yourself to the sale of your home without clear knowledge of where you are heading, you will likely opt to buy first. Especially if you are not convinced that the home of your dreams is lurking in the market at present, it makes sense to locate the next property before committing yourself to the rest of the process.
As most buyers are reliant upon the proceeds from their current house to purchase a new home, however, the above scenario is a pipe dream for the less well-heeled. Most will face the stark reality that they are simply hamstrung on a purchase until they sell their existing house.
So how does one combat the fear of committing to destinations unknown when putting a home on the market?
The ideal method is to negotiate a purchase that is conditioned upon the ultimate sale of your home, but few and far between are the sellers who will entertain straight contingent offers of that ilk. The preponderance of bank owned properties and short sales in the present market makes the task even more arduous as contingent offers are simply not entertained by the banks. Only the most patient seller will take a flyer on an offer from someone who has to sell a property to make the deal work. And if you happen to find such a rare bird, you’ll likely have to overpay for the home due to the weakness of your position.
When purchasing first or conditionally is not an option, the best compromise is to make your offers after you have accepted a contract on the home you are selling, but before it has closed escrow. With a buyer in hand, it is considerably easier to approach another seller with an offer. More attractive than a straight contingency in which you still have to line up a willing buyer, you can structure your offer to be subject to the successful close of escrow of the contract currently in place. This is not only more appealing to the seller, but if you have negotiated a longer close of escrow on the home you are selling, you can build in a little time to locate a property and negotiate a contract, thus avoiding a dreaded double move. Timing the closings can be tricky, but if done correctly, you can move directly from one home to the other without having to put your gear in storage while you, the kids, your dog Sadie, and the goldfish check into the Holiday Inn for a few weeks.
Naturally, to make this scenario work perfectly, you have to do your homework in advance. Even prior to listing your home for sale, start looking online at the available inventory. Get in the car with your agent to look at homes that fit your parameters. Get preapproved with your lender so that you are ready to pounce at a moment’s notice, as the right home for you is often right for someone else, too. Wasting time getting your preapproval in place after you find the property opens the door to not only unrealistic window shopping, but losing an ideal candidate to a buyer who is one step ahead. Do your due diligence up front and you’ll be ready to enter the scrum as soon as your home attracts a buyer.
To be sure, coordinating the near simultaneous buying and selling of homes is a stressful undertaking. You will experience Exorcist moments in which your head spins around a full 360 degrees. Understanding the process and the steps you can take to increase your chances of success will limit the projectile vomiting, however.
So which comes first, the chicken or the egg?
It varies from coup to coup, but in the end, it’s all protein.