✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.
According to a recent survey, 85% of sellers actively plan to buy and sell homes simultaneously. Moreover, 53% of buyers use the sales proceeds from their previous house to buy a new one.
Understanding how to buy and sell houses at the same time may be complex. However, efficient time and financial management can make both transactions seamless.
With Houzeo, you can go one step further. List your home on this flat fee MLS platform and skip out on agent fees. You can also browse through listings to find your new home on the same platform.
Buy or Sell a House: What Should You Do First?
The answer depends on your timeline and finances. If you can shift into your new home in a few days, or require funds for its down payment, you should sell first. You can even escape having to manage two mortgages.
If you don’t have a temporary place to stay after you move out, you should buy a house first.
3 Easy Steps to Buy and Sell Homes at the Same Time
Here are the 3 effective ways to execute both transactions:
1. Study the Current Market
Before you take the plunge, analyze your local market. Look for increasing home values, the median sale price, and economic growth in your area. These are positive signs for sellers.
In a high-demand market with a for-sale inventory ratio below 5, sell your house first. Conversely, a higher inventory ratio is a good sign for buyers to find a home.
Keep a tab on the mortgage rates. If the mortgage rates rise, it can drive up the overall cost of buying.
2. Get a Grip on Finances
You could use the sale proceeds to pay off the old mortgage and the down payment on the next home. On the other hand, 54% of buyers use their savings to buy and sell at the same time.
But what if you’re unable to arrange the finances? Here are some solutions for you to work out your finances.
- HELOC (Home Equity Line of Credit): HELOC comes with a tax-deductible interest. You can use HELOC to pay for the house improvements and down payment when buying and selling houses at the same time.
- Bridge Loan: You can opt for a bridge loan for faster approval and to cover the down payment whenever you simultaneously sell and buy a house.
- 401(k) Loan: If you have a 401(k) retirement plan, you can use it to buy a home. You can either take a loan against a 401(k) investment or withdraw an amount for the down payment. Comparatively, a loan against 401(k) is better as it helps you avoid the penalty of 10% and the tax liability.
3. Stage Your Home
You can set your desired asking price if you stage your home before selling. An unprepared home adversely impacts the sale price.
Declutter your house of unwanted things, personal belongings, and family photos. Repair the home, thoroughly clean it, and paint it in neutral colors before you list the house on the MLS.
7 Tips on How to Buy and Sell Houses at the Same Time
Here are some easy and effective tips to learn how to buy and sell houses at the same time:
1. Find the Right Time
Spring and summer seasons are certainly the highest-earning. Almost 17 million purchase transactions occur in the months of April, May, June, and July. By late summer and mid-winter, transactions start to taper off.
2. Get a Pre-Approved Mortgage
If you want to buy first, getting pre-approved for a mortgage helps you forecast the buying cost. It is a real challenge to get pre-approval while carrying two mortgages, and it requires a credit score of 750.
3. Maintain a Debt-To-Income Ratio (DTI)
The ideal debt-to-income ratio is 36% to quickly get a mortgage loan. If you want to buy first, you must maintain this ratio.
4. Determine the Correct Value of the Old Home
You get a better asking price and can perform a quick transaction with the right fair market value assessment. If you’re selling and buying homes at the same time, an FMV assessment helps determine your listing price.
5. Get a Rent-back or a Leaseback Agreement
A rent-back agreement lets you stay in your old home as a tenant if it sells before you find a new one. In an ideal sellers’ market, almost 46% of homes sell within 7 days, requiring temporary housing solutions.
6. Make a Contingent Offer
As a buyer who is also selling a house, make an offer with a sale contingency. A contingent offer allows you to buy a home only when you sell your existing home.
- ✍️ What to Consider if You’re a Seller? The buyer’s home selling time is uncertain. Before you accept a contingent offer, check if the homes in the buyer’s vicinity have been listed for more than 30 days. If yes, expect the same for the buyer’s property.
7. Hire the Same Agent
If you’re planning to buy and sell a house within the same city, the same agent will be more acquainted with the local area. They can help you finalize the logistics as per your needs. They can also help you find your desired location say, near a school, hospital, or supermarket.
The Risk and Rewards Analysis
Weigh the pros and cons of each scenario before making a final decision:
1. Buying a House First
| Advantages of Buying a House First | Disadvantages of Buying a House First |
|---|---|
| It’s a convenient process especially when you move with your family and belongings. | It costs you two mortgages at the same time. |
| You can shift to the new house and avoid living in limbo. You can also rent out your old home which helps you earn rental income. | You will have maintenance charges in addition to the closing costs and relocation expenses. |
2. Selling a House First
| Advantages of Selling a House First | Disadvantages of Selling a House First |
|---|---|
| You can avoid paying two mortgages. | You may have to rent a property, if you don’t find a new home immediately. It adds to the costs with double moving. |
| You can sell your house fast to arrange the down payment for the house you wish to buy. | If you’re in a rush to buy a new home, you might end up buying a house that doesn’t match your lifestyle and family's choice. |
Conclusion
Smart planning allows you to master how to buy and sell houses at the same time. Whether you sell your house or buy first, you must list your property on the MLS for faster execution and maximum savings.
Homes listed on the MLS sell faster and 17.5% more than those sold off the MLS. Technology-driven listing companies like Houzeo have digitized the process of listing a house without a Realtor.
Now, you can list your properties too and find homes on Houzeo from various listings. Your properties get additional exposure on the MLS, Homes.com, Zillow, Realtor.com, Trulia, and Redfin with Houzeo.
Frequently Asked Questions
Can I pay off my mortgage when I sell my home?
Yes, you have to definitely pay off your mortgage while you list and sell your home on the MLS. Paying a mortgage on your home is considered as a closure of the sale. The title agent sends the final mortgage payment and you can close on the sale.
What is my tax liability if I sell my house and buy another?
You have to pay capital gain taxes on the sale proceeds of your home as per the IRS rules. You can exclude up to $250,000 to $500,000 from the sale proceeds depending upon your marital status.
If you decide to buy a new house from the sale process, you will have to first pay the capital gains taxes. Only after paying the tax liability, you can pay for the new home.
What is the best time to sell a house?
Early summer and late spring are unanimously the best times to sell your house. Mortgage rates are lower and low inventory ratio make it easier to sell and buy. Still, you should check the market trends and your finances before making a decision.
