Should you buy first, then sell or vice versa ?

You own a house now, but you want to move to a different house or a different neighborhood. Should you sell your current home before you buy your next, or should you buy first, then sell your existing one? Though this is a very common question, there is no "right" answer. The answer depends on a number of things, but most importantly on how cautious you are and the current market conditions..

Human nature being what it is, once the decision to move is made, people usually put a great deal of effort into finding the perfect home, sometimes without giving much thought to selling their current one. If they do consider selling first, they figure they won't have any trouble finding someone eager to buy their charming home, so once again they focus on buying. Then, once their offer on a house has been accepted, their attention shifts to selling their current home.

Selling your existing home before buying another has its advantages. By selling first you know how much money you'll receive on closing, which helps you establish a price range for the new home. Also, if you've already sold you don't have to make your offer conditional on selling your existing home.

Possible Strategies

Aside from your own personality and what risks you're comfortable with, when facing the dilemma of buying-first/selling-first, don't forget to take market conditions into consideration. Generally speaking, it makes more sense to buy first in a seller's market ( that is, when prices are rising). The rationale is that if prices are going up, it's preferable to lock in the price of the home you want to buy, meanwhile allowing you to subsequently sell your home at a higher price (assuming the seller's market continues).

During a buyers market it generally makes sense to sell first. That way, you lock in the amount you'll receive for your current home, while having many homes to choose from when you subsequently buy. Of course, knowing whether it's a buyer's market or a seller's market isn't always straightforward and, depending on a number of factors, the market can change quite quickly. Your realtor can help determine what the market conditions are in your area and in the area in which you are looking to buy.

Conditional sale offers

One way of hedging your bet is to make your offer to buy conditional on selling your current home. With a conditional-on-sale offer, the offer becomes firm and binding only if you sign an offer to sell your current home within a specified period of time, usually 30-60 days.

When making any kind of conditional offer be sure the offer clearly states the condition that is to be satisfied and how long the buyer has to satisfy the condition and what happens if it is not satisfied. The offer should be phrased in such a way that some positive action must take place for the deal to remain active. Your Realtor is an expert in writing these agreements and should explain their implications to you in simple and easy to understand terms.

The likelihood of a conditional-on-sale offer being accepted depends on a number of factors, including the seller's personality and market condition. Sellers are less likely to accept a conditional offer in a seller's market because there are generally more buyers than sellers, so they believe another potential buyer is likely to come along pretty quickly. In a buyer's market there are likely to be more houses listed than interested buyers, so sellers may be more inclined to accept any offer including a conditional-on-sale offer.

Sellers reluctant to accept a conditional-on-sale offer can protect themselves by accepting the offer subject to a condition that allows them to continue listing the house for sale during this conditional period but that requires them to give the person who made the original conditional offer the opportunity to waive the condition if the seller receives another offer. If the person who made the original offer then decides to waive the condition, the original offer becomes firm and binding. This is an especially attractive way of structuring the deal if a buyer has asked for a relatively long conditional period. This is commonly referred to as a "First Refusal".

Your Comfort level

The bottom line is that whether you buy first or sell first is a personal decision. There are a number of factors that might influence your decision, but there is no right or wrong decision.