How to Buy and Sell a House at the Same Time (With 5 Example Scenarios)
The process of buying and selling your home at the same time is a simple process: put your home on the market for sale while searching for a new home. When you receive an offer on your home and accept a contract, go and put an offer on your favorite house.
Then, move through the normal home buying and home selling process but set your closing date on your current home to be earlier than the closing date on your new house. Negotiate a lease back from the buyer for your current home to lease it from them until your new home closes. This allows you to use the proceeds of the sale of your home as a down payment for your new house.
See? Simple, right?
Well, what if you don’t find the right house? What if the buyer backs out? What if they remake Alf?
I’m sure there are a ton of questions running through your head and that is normal. This article will better explain how to sell your home and buy a new one at the same time. I’ll go over the 4 tools you have at your disposal to help make this process easier and 5 scenarios of homeowner’s real life experiences with a double move. Let’s first dive into some of the challenges to consider.
New Lending Rules
There are a ton of moving parts with this process and it is not as easy as it used to be. Prior to all the changes in lending rules, you could sell your home in the morning and buy your new home in the afternoon and it would move like clockwork.
But all that has changed since the 2008-2009 real estate lending crisis and the Consumer Financial Protection Bureau’s dramatic new rule changes in 2015.
Most lenders have managed to improve the process since the new requirements came into effect, but there are so many things that can go wrong on the lending side, it is very unlikely to close without a delay .
Plus, it isn’t worth the stress of hoping two third-party companies can get the loans completed on time. To make it more challenging, one of them is for a buyer that you don’t control. With all the moving parts, it just makes sense to eliminate as many challenges as possible and not try to do a double close on the same day.
Where to Start When Moving Twice
To start, you will need to know three things: 1) Know Your Home 2) Know Where You Want to Buy and 3) Know the Market.
Know your Home
What I mean by “know your home” is know about how fast your home will sell in the current market, what price and any potential hang ups buyers may have with your home. Your real estate professional (don’t have a great agent? check out this article on the top 7 things to look for in your agent) will do an in depth market analysis and review the absorption rate to give you an idea of what it may sell for in a particular time frame.
If the condition of your house is less than stellar, you may have a buyer that backs out due to the scope of repairs and updates they will have to do. Even providing a credit or dropping the price may not overcome a buyer’s (oftentimes a first time home buyer’s) fears.
Addressing these issues before listing the home on the market is a great idea as a buyer backing out can derail the purchase of your new home.
Know Where You Want to Buy
I would suggest to begin looking at homes even before your house is on the market. If you are just moving to a different part of the same city, it is easy to drive to the area and begin familiarizing yourself with the various neighborhoods.
I like to focus on the bigger picture first when buying a home and then zoom in. That means that it is best to find the area, then the neighborhood you love and then find a house in that neighborhood that is perfect, rather than randomly seeing homes scattered throughout the city just because they look pretty.
This process allows you to familiarize yourself with a few neighborhoods you like (and afford), so that when your house does go under contract (aka accepts an offer) you can move quickly to find your new home.
Know the Market
This is so very important. When selling your house and buying a new one at the same time, most people need the equity from their current home to use as the down payment to buy their new home (that’s probably why you’re reading this ;).
It is important to place a contingency for the sale of another property in your offer. I’ll dive into this addendum soon, but it basically means that if your buyer backs out, you can back out from purchasing your new home and get your earnest money back (in most cases).
The earnest money is often 1% to 2% of the purchase price and is held in an escrow account at the title company.
It is important to know the market because in a hot market, it will be nearly impossible for you to get your offer accepted with the contingency of the sale of your home.
I mean, you can try, but when a seller receives multiple offers and your offer, no matter how great, won’t be considered. It’s just too much risk for the seller to count on the buyer for your home to buy your house without any hiccups.
It’s hard enough to get buyers to follow through with purchasing a home, but add another buyer and lender to that equation and it multiplies the chance of a failed contract.
After you understand the value of your home, started narrowing down to a few neighborhoods and educating yourself on the current real estate market, you can begin with listing your home.
Selling a home can be a challenge so I wrote the Ultimate Guide to Selling Your Home Fast. It has a great overview of the home selling process and practical tips on preparing your home for sale and how to get it sold for quickly for the most money.
For the simultaneous home buy and sale, I do want to share with you some powerful few tools you have in your toolbox to help make this transition easier.
The Four Tools of Buying and Selling a Home
The Contingency for the Sale of Your Home
I mentioned this briefly, but the document that provides for you to back out of purchasing your new home if the buyer for your home backs out, is the best tool you have.
If you didn’t have this in place, then when you terminate a contract for buying your new home, the earnest money would not be released back to you. And in some cases, the seller can sue for “specific performance,” meaning that you would still have to purchase the house.
This is less common but you and your agent always need to protect yourself.
I’m going to briefly share about the document we use in Texas titled The Addendum for the Sale of Another Property by Buyer.
*Please note, I am not a licensed real estate attorney and can not fully explain the implications of this form. This is only my opinion and I would suggest talking with your real estate professional or real estate attorney.
Okay, now that the CYA is done, let’s dive in.
- The first thing to note is that it requires you to insert a specific date for the sale of your current home. If it doesn’t sell on or before that date, then you should have the contingency to terminate the contract and keep your earnest money.
- There is a statement that if the owner for your home receives another offer to purchase it, negotiates and accepts the offer, you as the first buyer will have a specific number of days to decide if you will move forward by waiving that contingency or back out of the contract. The number of days is negotiable.
- If you do decide to waive the contingency, there is an additional deposit need. The amount is whatever is negotiated between the buyer and the seller and it shows the buyer’s commitment to moving forward. These additional funds are also held in escrow at the title company and the seller can collect if you are unable to perform with purchasing the home (not all cases).
Okay, let me unpack that a bit.
Let’s say the seller of the best house in a neighborhood has accepted your offer and it has a contingency for the sale of your home included. If another buyer decides they want that great house, then they put in an offer and negotiate an acceptable contract to the seller.
The seller can then come back to you and ask you to 1) waive the contingency or 2) back out.
This obviously stinks for you as the buyer who still needs to sell your first house for the down payment. I would say the majority of people in this circumstance would have to back out, but it depends on where the buyer is for your home in the process.
If they are through their option period (inspection period), the appraisal is complete, financing is looking good and you are only a few days or weeks out from closing, maybe you do decide to waive the contingency.
If the buyer is only in their option period (the negotiated time frame for buyers to do inspections), then it may be the best decision to back out. Most buyers who back out of a deal do so during the option period.
If you are thinking of moving forward, it may be wise to consider other means for the down payment: a bridge loan, a loan from your IRA, or a loan from family or friend (some loan products allow this). Even if you do get help with the down payment, would you be able to float two mortgages for a while?
It is a risk you have to decide if you will take it.
*Again, please consult your real estate professional or attorney for clarification and interpretation. This is just an opinion. (Double CYA)*
Real Estate Lease Back
Let’s say you are selling your home on 1234 Main St. If you have a lease back (temporary lease is the official term), this will allow you to stay in your home after you have signed the closing paperwork and your buyer is now the new owner of 1234 Main St. So, you are basically renting the house from the new owner, hence the term, lease back.
This changes your relationship with the other party from buyer and seller, to tenant and landlord.
Even though it is temporary, it is important to understand 1234 Main St is not your home anymore. The temporary lease form usually requires a deposit and an inventory and condition form which documents the condition of the house. Any damages can result in charges for repairs.
It also changes your homeowner’s insurance to renter’s insurance. This is particularly important for the landlord as a catastrophic event may not be covered due to the change of use with the property.
I would recommend negotiating the lease back at the initial negotiations with your buyer or during the option period as most buyers would rather not hassle with a lease back and would prefer to move in right away.
I’ve worked with clients that were able to negotiate a lease back after each of these main periods of negotiating but it was not easy, and they had very understanding buyers.
Another thing to note is that it is common to pay the new owner rent since you are actually renting your old house from them. Strange concept, right?
Some sellers will get offended if the buyer requires them to pay rent because they still feel it’s their house. But hey, you can’t have your cake and eat it for free (who came up with that saying anyway?).
Often, the new buyer will figure out their monthly payment, divide it by the number of days in the month and then charge you that daily rate.
It’s not a hard and fast rule, but a simple rule of thumb.
A bridge loan is a loan that provides you money for the down payment on your new home while you sell your current home. It can be a great tool to use to lower the stress of having to sell and buy the perfect home in a small window.
The challenge of a bridge loan is that you must float two mortgages at once and if it takes longer to sell your home, it can be expensive.
Most large banks will provide bridge loan products, so be sure to check there first to see if this option is a good fit for you. For a more in-depth review of a bridge loan, check out this article on thebalance.com.
The Double Move
Having to move twice is probably the least desirable option as moving one time is challenging enough, but in some cases, it’s the best option.
The great thing about the double move is that selling your home is no longer a contingency to you purchasing your new home, and your offer will look stronger in the eyes of the seller. It is also great because you don’t have to feel pressured to buying a home just because your current home has a contract on it.
It would be a terrible feeling to constantly regret buying a home just because it was the best one available, but not the right one.
The challenge with the double move is, of course, the difficulty and expense of moving twice.
You will also have to stay with a family member or find a short-term rental until you find the right house. To make it easier and help the wallet, it may be a great idea to get a POD to help with the move.
Check out this article on Realtor.com with all the info you need to know about renting a POD.
Scenarios for Buying and Selling a Home at the Same Time
Sometimes it just makes sense to have an example. Below are five examples of homeowners selling their house while buying at the same time.
The Smith family needed to move for a better school district for their children. They have a beautifully maintained home and they lovingly updated it over the years. They planned on staying in the house until their kids graduated high school, but decided they needed a better school district.
We met up for a listing consultation to discuss selling their current house and buying a new one. We reviewed the market analysis for their home and agreed on a listing price and start date for listing their home for sale.
The Smith family scheduled the meeting with the stager for their complimentary three-hour staging appointment and we also scheduled the professional photographer. The house already looked amazing, but after the extra touch from the professional stager, it was even more beautiful.
The home went active on the market on a Thursday and we began marketing it.
While this process was in motion, the Smith family began to drive the various neighborhoods with top-ranked schools to get a feel for what they wanted in their new house and which neighborhood would work for them.
We would send various homes back and forth to each other until they narrowed it down to one master planned community with a wonderful elementary, middle and high school.
As soon as a house would pop up on the market that fit their needs, we would schedule a tour. We did this until they had a good idea of what kind of home they could get for their budget. It was also helpful because the clients didn’t quite see eye to eye on what they wanted in their new house (which happens just about every time) and seeing each home helped to have a discussion about the floor plan, lot size and updates they each preferred.
In the meantime, their house was getting a crazy number of showings (or home tours) but no offers. We did have interested buyers, but they were stuck at a much lower price.
Late one evening I received an email notification that a new house popped up on the market and it looked immaculate and crossed off all the boxes. Not only that, it was in the budget.
We saw it on day 1 of the listing, wrote an offer in the house and even after six offers from other buyers, we won the contract.
The challenge was that we still had to sell their home. We agreed to a strong price drop and I reached out to a few agents that had interested buyers. Luckily, one of them resubmitted a higher offer and we negotiated and accepted a contract.
We made sure to schedule the closing three days before their new home closed and specified that it must include a 7-day lease back for the Smith family. This way, they were able to sell their house and apply the proceeds as the down payment to their new home, and still have time to move in before their temporary lease expired.
The backup plan was to use some other means of down payment (family loan, IRA loan or a bridge loan) or to move twice to their family member’s house and then to their new home.
It would have been more difficult, but the house they bought was head and tails above the homes we toured. I’m talking about a perfectly maintained and updated home for a great price. It’s the kind of house most buyers dream of but only exists in their minds.
Thankfully, the Smith family was able to buy their dream home and still sell theirs for a good price.
The Lee family found themselves in a bit of a jam. We had already listed their house on the market and found a buyer. In the meantime, they found a great one story home on a larger lot that we submitted an offer and got an amazing deal.
So much so, the sellers were selling for less than they purchased it for even after doing a ton of updates.
The Lee family had a short lease back from the buyers but the buyers were on a time crunch, so we knew everything had to go smoothly. The bump in the road came when the appraisal for the home the Lee’s were buying came back low. The seller had to make the decision to drop the price or my clients had to walk away as they would not be able to cover the difference.
Luckily, the sellers had to get the property off the market and they dropped the price to the appraised value so they could get the house sold.
A more difficult challenge came when the lender for the buyers on the Lee family house dropped the ball and was not able to close on time. It was a domino effect as it made us push back our closing and affected the loan for the Lee family.
Ultimately, the buyers were able to close two weeks after the original close date and my client’s lender was able to close two days afterward.
Instead of moving twice, the Lee family rented moving trucks and stored all of their items in the trucks for two days while they stayed with family. It was probably a little risky, but it worked out and they were able to move in right after it funded.
It would have been nice to have them store their items in the house or the garage, but a buyer can not take possession of a house until all paperwork is signed and all the funds transferred over.
One owner in my neighborhood came to me after buying their dream home on a lake in another state and asked me to help sell their current home. They used a bridge loan as the down payments on their new home and to help with the two mortgage payments.
We put their home on the market and despite it being an absolutely beautiful home with a great pool, it took much longer than expected to sell. After a while, the right buyer came along and they were able to close on their home and roll the proceeds from the sale of their home into the loan for their dream home.
The proceeds help lower the monthly payment on their new home to a very affordable payment and they were so glad they used the bridge loan.
Check with your local bank or credit union to see what bridge loan products they offer.
It was a hot market when the Braun family needed to move. It wasn’t long after listing their home for sale that we received a few offers.
The owners accepted an offer and then moved forward with placing an offer on the top home of their choice. We were hoping that since their home was now under contract, it would enhance their offer even though they had the contingency that they had to sell their home first to be able to buy their new home.
It seemed like every other buyer thought the homes the Braun’s liked were great as well, so we fought multiple offers on every top property and ultimately lost out.
In Texas, it is almost impossible for a seller to back out of an accepted contract, so they proceeded on with the sale of their home and had to put their items in storage and stay with a family member.
Now that they had the down payment ready to go, we found a home in their desired neighborhood they fell in love with, made a strong offer and beat out the competition. It was more challenging to buy and sell a home in a hot market, but they are so grateful they ended up buying a great home.
It was a slower market when the Spetzel family needed to move. Their home had already been on the market for a few months when the home they fell in love with hit the market.
We spoke with the agent to let them know that we are very interested but that my clients needed to sell their house before they bought a new one. We asked the agent to keep us posted if any offer came in.
An agonizing month went by without either home selling. Then, after a dramatic price drop and some fresh marketing, we found a buyer for the Spetzel home.
They then made an offer on the home they had been watching for a month and we negotiated a fair price. Unfortunately, within three days of being under contract on the Spetzel’s house, the buyer backed out for an unknown reason.
Being heartbroken, they decided it was best to terminate the contract during the option period and receive the earnest money back. They spent a good amount of money on inspections and repair quotes, but they were happy to get their earnest money back.
It took even longer to find the next buyer for their house and thankfully, this buyer completed the sale. Unfortunately, the home they had to back out of was purchased by another buyer, so we made an offer on another wonderful home with a contingency of the sale of their home and it was accepted.
The Spetzel’s sold their current home and did a temporary lease back from the new owners for two weeks so they could close on their new home and move in over the weekend.
Your Next Move
Having to sell and buy a home at the same time can be a tricky process. It is important to protect yourself and your earnest money as much as possible. In addition to that, finding the right home so you don’t walk through the front door every day thinking you had to settle because it was the best home on the market rather than the right home.
Use the four tools of the contingency of the sale of another property, the lease back, the double move and the bridge loan to make the transition as easy as possible into the right home.
All the Best!