If you’ve been working as an agent for any length of time, a client has likely asked whether it’s better to sell a home before buying a new one, or the other way around. Though rising interest rates may encourage buyers to purchase a new home before selling their old one, in reality, the answer to this question varies drastically from client to client, depending on their lifestyle and financial situation.
The addition of iBuyers, which are companies that buy homes directly from homeowners, have also muddied the waters by offering fast, all-cash offers that can be enticing to sellers looking for quick transactions. Here are some things to keep in mind while you help your clients determine which buying and selling strategy is the best fit.
The pros and cons of selling before buying
- Easier budgeting
The best argument for selling before buying is that it leads to easier budgeting. Since the sellers will have already paid off their mortgage by the time they’re ready to buy, they’ll know exactly how much they can afford to spend on a new home. This may be the best strategy for clients who will need to use the money from their home sale in order to purchase something new, especially if they’re on a tight budget.
iBuyers like Opendoor and Offerpad can speed up the process by using algorithms to generate offers that reflect the home’s fair market value, drastically cutting down on the time it takes to negotiate a sale. However, traditional agents contend that the offer may be on the lower end of fair market value, meaning that sellers can potentially be leaving money on the table, especially in competitive markets.
2. Stronger negotiating position
If buyers do decide to go the traditional route, selling their home before buying something new also puts them in a stronger negotiating position once they’re ready to make an offer. Since they’ll already have the money from their sale in hand, they won’t need to include a home sale contingency in their offer, making it a more attractive option for sellers.
3. The need for temporary housing
However, the downside of selling before buying is that unless your clients are able to make both their buying and selling transaction timelines line up, they will have to find temporary housing while they’re waiting to settle on their new home. This, of course, is an added cost that will have to be considered. Along with that, they may also have to factor in the cost of storing their belongings.
This is one advantage that iBuyers have over traditional real estate practices. These companies often offer sellers the chance to select their own moving timeline, which allows them the freedom of only having to move once.
The pros and cons of buying before selling
- More time to find a home
Having to live in temporary housing can add stress to the homebuying process. Buyers can feel pressured to put an offer in on a home just so they have somewhere to settle down, even if it’s not an ideal fit for their needs. When clients buy before they sell, they don’t have this issue. Since their home won’t go on the market until they’re ready, they can take as much time finding a home as they need.
2. Only having to move once
The other advantage of buying before selling is that your clients will only have to move one time (instead of to and from temporary housing). Plus, as soon as they’ve closed on their new home, they can make the transition at any time. This may be a selling point for clients that have young children or pets and may have difficulty orchestrating the move to and from temporary housing.
3. Financially managing two homes
A big disadvantage to buying before selling is that your client could run the risk of having to financially manage two homes while they wait to find a buyer. iBuyers can speed up that process because they don’t include the often lengthy mortgage underwriting process. And they’re becoming more and more common—Zillow’s iBuying program, for example, is expected to reach nine markets by the end of 2019 including areas like Texas, North Carolina, and California.
Speeding up the selling process can help your client save significantly. Mortgage payments, utilities and home insurance for two separate houses add up fast and can put a major strain on your client’s finances. Make sure your clients are aware of the financial implications of carrying two properties and that they’re prepared to shoulder the cost.
The bottom line
At the end of the day, it’s up to the client to decide which move better suits their needs. But with the help of the pros and cons above, you can guide your clients to a decision that works best for them.
About the Author
Maxime Croll is an insurance expert and Product Manager at ValuePenguin. Educating and assisting shoppers about financial products is her focus and passion. She has been featured on Newsmax, ThriveGlobal and Forbes Business Development Council.