Buying and selling at the same time can create problems

Which do you do first? You might get help from a home equity loan

The days when people bought a house and stayed in it forever are long gone, and today, it’s rare for anyone to stay in their house for even a decade. That being the case, it is quite common for homeowners to have a need to sell their existing house while buying another one in which to live. No one wants two houses, so it only stands to reason that if you are buying one you are going to sell another. The problem that most people have is figuring out which one to do first.

There are a number of problems with the buy-sell scenario. Most homeowners can’t afford to pay for two houses at once. It’s hard enough paying for one house at once. That means that the buying and the selling need to somehow be arranged in such a way that works out for both buyers and sellers. How is this done?

There are several different ways that these problem are usually handled:

• Home equity line of credit - If you have substantial equity in your existing property, you can take out a line of credit before you go house hunting. This line of credit will allow you to write a check for the down payment, using the equity of the existing house to provide the cash. You can close on one house and then put the other one up for sale. This is probably the most common way to handle such a transaction today.
• Contingent sale - The seller of the house you wish to buy agrees to sell the house to you, but only after you sell your own home. The sale is “contingent” upon you being able to move your property within an agreed-upon period of time. This doesn’t work in a hot market where people are aggressively bidding on houses, but as home sales slow down, this technique may work again. In a hot market, sellers have no incentive to wait; they can just take the cash from whomever offers it first.
• Rent - Some people simply put their existing home up for sale, sell it, and rent something while they shop for another house. An alternative would be to stay with friends or relatives. The problem with this is that you have to move twice and find a place to store your things in the meantime. Some sellers write a clause in the contract that permits them to rent their own house back for a month or two after they sell it. This will work in a hot market; buyers are often willing to do just about anything to get a house they really want. In a slower market, where buyers have the edge, it may be less likely to work.

The problem of what to do with an existing house when you buy a new one is an old problem. People have been dealing with it for years. How well one plan works versus another is simply dependent on the state of the market at the time. If you need to find a way to buy and sell at the same time, discuss it with your real estate agent and lender to see what they recommend.