Although it is generally better to sell first before buying another property, sometimes the market conditions are right to buy before you sell. Home buyers who decide to buy before selling often write a "Sale of Buyer's Home" condition into the purchase contract, meaning the buyer's property must sell before the buyer is obligated to complete the transaction.
Because purchase contracts with a "Sale of Buyer's Home" condition are most often a good deal for a buyer and a riskier solution for a seller, many sellers will want a "Sale of Buyer's Home Schedule" attached to the purchase contract. This schedule is a legal document that sellers and buyers can use to address a "Sale of Buyer's Home" condition and protect the rights of both parties.
Sellers want to know the status of the buyer's sale process. The status might make a difference as to whether your offer is accepted. Obviously, if your home is not yet on the market, the seller might not consider your offer at all because it will give the impression that you are not serious about selling or buying. If there is "Sale of Buyer's Home Schedule" attached to your purchase contract it will stipulates that your property is listed or will be listed within 24 hours of acceptance of your purchase contract.
The seller's property will continue to be marketed and the seller may accept a second conditional purchase contract. If the seller signs a second purchase contract, the seller will give you notice that a second contract has been accepted. You will be given a very short period of time to give the seller notice that ALL conditions in your purchase contract are satisfied or waived making it an unconditional purchase contract – the contract is enforceable and will be completed according to its terms. If you fail to give this notice to the seller your purchase contract is ended and the deposits will be returned to you. You and the seller will have no further obligations or liabilities under your purchase contract. This does not mean you need to sell, but your agreement would no longer be contingent on the sale of your property. Removing your contingencies means you would need to find the funds to close elsewhere such as by obtaining a bridge loan or liquidating assets.
Reasons to Buy First and Then Sell
It's a Seller's Market.
When there many buyers and few properties on the market, homes generally sell within days of hitting the market. This is a market like we had in 2006. In this instance, there is little risk in buying first and selling second. However, few sellers will accept a "Sale of Buyer's Home" condition. Since these sellers will not accept an offer with a "Sale of Buyer's Home" condition, you could be stuck owning two residences until your home sells. On top of that, you will pay top dollar for your new home, especially if you end up bidding in a multiple offer situation.
Deal is Too Good to Wait
Sometimes, regardless of the marketplace, a home will come on the market at a price that is too good to pass up. Perhaps the sellers are getting divorced, moving to another city; the point is the sellers are extremely motivated to sell. Before word spreads across town, you might want to be the first offer on the table.
In this instance, it makes sense to buy before you sell because the money you make walking into the deal is worth making double payments until your home sells.
- It's Your Dream Home.
This is an emotional decision. As much as many buyers might want to be logical and analytical, people who let their hearts rule are not. If you are determined to buy that dream home as soon as it comes on the market, it may mean that you have to buy before you sell.