To Buy, Then Sell or Sell, Then Buy?

There are, quite obviously, two schools of thought on this subject.  Choosing a new home is an emotional decision.  Many people fear that if they sell their current home first, they will not be able to find their next "dream home" before they close the sale on their current home.  Conversely, many fear that if they make an offer on the home of their choice before selling their current home, they may not be able to sell in time and could end up making two mortgage payments.  Both opinions are valid; however, one is riskier than the other.  

In our real estate market, agents have some tools to assist with either scenario.  The first is the Contingency Clause or Concurrency Clause.  The second is the Subject to Specific Purchase Clause.

Contingency or Concurrency Clause

A Contingency Clause states that a Buyer is making an offer on a new home, but completing the transaction is Contingent upon the sale of his current home.  If another Buyer offers on the Seller's property before the Buyer can sell his own property, he will be given the option to remove the Contingency within a prescribed number of days and move forward with the purchase without regard to the sale of his current home or to release the Seller from the purchase agreement, rendering the agreement null and void.  In this case, all deposits will be returned.

A Concurrency Clause states that both Buyer and Seller will offer their homes for sale Concurrently.  If the Seller finds another Buyer before the Buyer sells his home, or if the Buyer cannot sell his home within the specified time period, the sales agreement immediately becomes null and void and all deposits shall be returned.

PROS:

• Allows a Buyer to make an offer on his dream home while not obligating him to complete the sale if he can't sell his current home.  
• It allows a Buyer to be certain that he will be able to negotiate acceptable price and terms on the home of his choice before committing to sell his current home. 

CONS: 

• Sellers are reluctant to accept a Contingent offer; although still considered an active listing in the MLS for showing purposes, the status must change to Contingent, dramatically reducing showings.  
• In the case of a Contingency, if another offer comes in on the property, you will have a few days (usually 1-3) to remove the Contingency, that is, to perform on the contract regardless of the sale of your current home, or forfeit the property. 
• In the case of a Concurrency, the MLS status remains Active and the home continues to be marketed.  It is a race to sell before the Seller finds another Buyer and the first Buyer forfeits the property.

Subject to Specific Purchase Clause

A Subject to Specific Purchase Clause is when a Seller accepts a Buyer's offer, however the Seller stipulates that he must find an acceptable replacement home within a specified period of time, which will close in conjunction with the sale of his current home.  If the Seller is unable to find a replacement home within the prescribed time per the sales agreement, the Seller is under no obligation to sell his home to the new Buyer.  

PROS:

• Allows a Seller a specified period of time to perform his new home search while retaining a Buyer for his current home.
• With the Seller's current home under contract, the lender can qualify him for a new mortgage up to his maximum buying potential.

CONS:

• A Buyer may be reluctant to sign such an agreement, as this commits him to wait and hope that a Seller will find a suitable replacement property.  

In this instance, a seller still has options.  The Seller can accept the Buyer's offer without the Subject to Specific Purchase Clause, but counter-offering a longer closing period to allow time for his new home search.  Rather than lose a good Buyer in a sluggish market, a Seller may choose to consider a short term rental or even rent back his current home from the new Buyer until he finds the right home.  

Buying before you sell without a any protective clause

This option is one that I have seen many unrepresented and some represented buyers take and it is one that carries several significant risks that must be considered before moving in this direction:

• Lower selling price for your current home.  Selling under duress, which in some cases fits this scenario, often results in lower offers.  I can't tell you how many times I have heard a buyer touring an empty home state that they thought they would get a deal because the home owner has already bought a new home and "needs to sell."  Even if you are still living in the home, an over-zealous listing agent may recommend the terminology "motivated seller" in the listing comments which will often result in a lower offer.  Regardless, when neither the home is vacant nor the agent has compromised your bargaining position, the pressure to accept a low offer for fear of losing the buyer is present.  
• Dual mortgage payments.  Even if you have the income to support it, making dual mortgage payments can be a significant financial strain. Consideration should be given to how such a burden will effect the family's current lifestyle and whether the shift in priorities is worth the risk.  A change in your employment situation, such as a pay-cut or job loss could have a devastating effect.  

Home buying is never one size fits all.  Whichever option best suits your personality type, it is important that you choose an agent that is willing to listen to your wants and needs and one who is well versed regarding protective clauses in the contract to look out for your best interests.