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Real Estate: Is it Better to Buy First or to Sell First?

12/07/2013 12:57 EST | Updated 02/05/2014 05:59 EST

I get asked all the time by prospective home sellers whether they should sell their home first and then buy, or whether they should buy first and then sell. The short answer is that there is no right decision, and there are advantages and disadvantages to both options. However, with careful planning and a detailed strategy from the start, home owners should be able to minimize their risk and complete both the buy and the sell successfully.

Selling First

Some people believe that selling first makes the most sense, and in some cases this may be true. It can also leave the home owner in a bind if they can't find a new home to buy in the short amount of time it takes for their sale to close.

Selling first makes the most sense in a buyer's market where there are lots of properties available for sale, and not many buyers competing for those properties. In this case when selling a home is more difficult, it makes sense to leave more time to complete that transaction, and buying should be easier since there is a large inventory of homes to choose from. However, this can backfire if the right house doesn't turn up at the right time. The home owner can be left unsatisfied in their new house, and there is an element of luck to finding the right property in this scenario.

Selling first can be even more difficult as homeowners climb the property ladder. They have more experience and more money to spend. They become more picky and specific about what they want in their next house, and it gets increasingly difficult to find the perfect home, especially if it has to be done in a limited amount of time.

Buying First

If home owners buy before they sell, they are more likely to end up in their dream home, since they can take as much time as they need to find the right property. This strategy makes the most sense in a seller's market where listings sell very quickly and there isn't much inventory to choose from.

The problems that can arise from buying first are very serious. Home owners can find themselves backed into a corner, forced to sell at a deeply discounted price, potentially losing thousands of dollars. This can be avoided with a clause in the sale agreement making the purchase conditional on selling first, but many sellers refuse to accept this clause.

Combined strategy

My advice to home owners is to combine the buying and selling process together and do both concurrently. This is part of a detailed strategy that will get the best possible results in any market. The first part of this is to get the property listed for sale. In this case, when the home owner hasn't bought a property, there is no time crunch and they can be more aggressive in choosing the selling price. If they list for a higher amount, there is a chance they could sell for a big profit and now they can use this money towards their purchase.

Once the house is listed for sale, home owners can be more selective when searching for homes to buy, since there are no deadlines. At this point, it doesn't matter whether they buy or sell first, as in either case they are well positioned to maximize their chances of success in both transactions.

If they buy first, their property is already listed, so there is no delay in listing the property, which can take several days. They will also have market data and feedback from buyers from the listing, so it should be easier to find the right price to sell.

If the home owner sells first, then hopefully they sold for a great price and can use some of that money towards their purchase. They have experienced many showings, and are much more aware of the market and what is available for sale. This makes it easier for them to make a good decision when buying.

There is no right or wrong answer to whether home owners should buy or sell first. However, I recommend they look at the entire experience as part of one real estate strategy. This will help them to have the best possible results on both sides of the real estate transaction.

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