The Advantages & Disadvantages of Buying Before Selling

A lot of homeowners run into an increasingly common situation when considering looking for a new home. They need or want to move but are undecided about if they should buy a new home first or sell their existing home. The answer could be yes or no depending on the borrower's situation.  Let's explore the advantages and disadvantages involving each choice.

Buying first will of course leave you with higher expenses until your home sells later on. However, selling first could potentially leave you “homeless” until you buy your new home.

Advantages of Buying Before Selling

Buying a home prior to selling your old home can result in a few major benefits. The first one is it can make the process of house searching more enjoyable.

Often times, homeowners are pressured to speed up the buying process because they need to be move out before their current home's closing date. 

When you have more time to search for a home, you have less regrets and don't overlook certain processes when you buy a home. There's more time to compare lenders, homes, inspections, etc.

An additional key benefit of buying before selling your home is there is no guarantee that the seller of the home will accept your offer. If the seller rejects your offer, your new home search can proceed while still living comfortably in your current home. 

If you plan on purchasing a home that needs some fixing, it will enable you to stay in your existing home as you fix up your new home. Replacing floors, painting, wall removals, plumbing, counter upgrades, wiring, and similar projects are a lot less difficult to finish in an unfurnished home.

Disadvantages of Buying Before Selling

There are also a few drawbacks to buying a home before selling. The most significant problem of buying a new home first is that you could be paying two mortgage payments longer than you expect. 

Many times home buyers expect their existing home to sell quickly but that is not always the case. The risk is money troubles could arise as you attempt to pay two house payment that includes property taxes, insurance and if applicable HOA dues.

Furthermore, you may have challenges with qualifying for a home loan until you sell your existing home. You may need to use the proceeds of the sale of your home for a down payment on the next home to get a mortgage.

If your offer is accepted on a new home and are lacking the funds to pay for it, a great financial solution is "gap financing" or a bridge loan. A bridge loan assists borrowers with the down payment funds and closing costs until your existing home is sold. There terms can range from a one month up to two years.

Tips for Buying Before Selling

Although gap financing could be the ideal solution for you, make certain to think about all areas of your decision. First, determine if you can truly afford the house payments on two homes at the same time.  In a perfect scenario, your house payment which includes your mortgage, taxes, and insurance should not be more than 32 percent of your gross monthly income. If they are, you may want to reconsider buying a home before listing your home for sell.

Consult with a few local real estate agents in Orange County about listing your home for sale and how long it should take to sell your home. Another option some home buyers do is rent out their current home to help pay for that mortgage and maybe sell it later down the road.

However, being a landlord is not always an easy position. You may want to think about hiring a property manager to relieve you of those tenant calls for maintenance. They typically charge 10% of the rent collected.

Hiring a listing agent tends to earn FSBO's more money

FSBO's who list their homes on the market normally put a value according to Zillow, other online tools or the high amount that the neighbor down the street said they were offered.  Unfortunately, these are practices that are likely to make the overpriced.

Agents say the risk in overpricing a home is that it will sit a long time on the market, and buyers will question why, even if the price is lowered later. There are statistics to back up this claim as well.

Studies prove that selling your home through a professional real estate agent will get you a higher net gain, enough to pay for the commission on top of putting more money in your pocket.

According to the National Association of Realtor®'s 2016 Profile of Home Buyers and Sellers, the average FSBO sales price was $185,000, while the average price for a home listed by an real estate agent was $245,000. Most people would  like to get the most they can for their home.

Additional reasons to use an Agent
1. They are objective and understand fair market value and pricing strategy: When you work with an experienced local agent, they will probably have greater knowledge about the value of your home in your area, and what buyers are willing to pay to become new owners. They also should know some photographers and home stagers, who can emphasize the amenities that local buyers desire.

2.Marketing your home online isn't as easy as you think
Buyers always start online, and "for sale by owner" sellers are unlikely to get the exposure they need on a number of listings websites to reach their audience

3. Agents have the ability to promote your home to a larger audience. They do this through their local MLS membership, online listing websites, social media platform, business partners, and agent connections, your real estate agent can get a lot of views on your listing and a lot of prospective buyers in you home.

4. More Buyer's agents will see your listing when listed through an agent. This means they are more likely to show your home to potential buyers.

5. Experienced agents can identify serious buyers and advise which offer is the strongest.  The benefit here is it limits the barrage of calls and negotiations with buyers who are less motivated.

6. When you sell a home, there's a lot of legal documentation involved. The burden of making sure it's in compliance with state laws is the listing agent's responsibility when they lst your home.Otherwise, it is the buyer's duty.