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‘Buy Before Sell’ vs ‘Sell Before Buy’ – Best Strategy For A Sideways Move In Real Estate

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‘Buy before Sell’ vs ‘Sell before Buy’ – Best strategy for a sideways move in Honolulu’s real estate market –

“Can we buy a home subject to the sale of our existing home?”  That’s what I get asked often from clients that already own a home and have the need to move into their next home.

Let’s say you do not have  a.) enough cash, or  b.) financial strength to comfortably qualify and carry both mortgages at the same time. Than this is for you!

We will compare strategies and conclude with the best strategy to successfully complete this sideways move in Honolulu’s real estate market.


Strategy #1:  ‘Buy before Sell’ – Not so good

“We just want to look at homes, when we see what we like then we want to make an offer, subject to the sale of our existing home.” 

It is a common popular myth that this approach is going to work. Unfortunately it is flawed for the following reasons:

A.) we don’t have a buyer yet for your current home.   B.) We don’t even have your home on the market, and, C.) we have not prepared your current home for maximum salability.  Also, D.) most sellers would not want you tying up their property and then wait around until you get your home sold.  – That’s not going to happen.

The very few sellers that actually might be patient enough and consider your purchase contract subject to the sale of your current home usually have two requirements:  1.) they want top dollar, and 2.)  a ’72-hour kick-out clause’. That is a provision in the Purchase Contract that ‘allows the seller to continue marketing their home and generate better offers’. The seller could sell the property to another buyer after 72 hours of receiving a better offer if you are unable to remove your home sale contingency in time.

You can see, the ‘Buy before Sell’ strategy puts you in a weak negotiation position on the buy side. It also puts you in a weak negotiating position on the sell side, because of the time pressure to have to sell your home quickly.    – This is like pushing on a string.  Not so good.


moving

Moving done the right way

Here is a far better approach to do this type of sideways move:

Strategy #2:  ‘Sell before Buy’ – The better approach

I know what you are thinking. You don’t want to be out on the street without a home if you sell before you buy. That’s why we structure both, sell and buy transactions carefully as follows:

Step #1.)  Prepare your current home to market and sell at top dollar

a.) Uncluttering and cleaning,

b.) Completing all needed cost effective repairs,

c.) Completing cosmetic upgrades that will make your home look the very best.

We are aiming for mass curb appeal combined with maximum marketing exposure to attract a large number of qualified buyers to get the highest possible price for your home that the market could bear. 

Btw, it is ok to look at possible replacement homes and get inspired. Just remember, any homes you might see today could long be sold by the time you are ready to strike and make your strong offer. That’s is ok. Our current focus is to get top dollar for your current home.

Step #2.)  Once we have identified the right buyer willing to pay your desired sales price we will add two important special terms to the Purchase Contract.

1.)    “The contract to sell your current home is contingent on an accepted purchase contract on a suitable replacement property within 7 days of the acceptance of the sales contract for your current home.”

2.)    “You reserve the right to occupy your current home for up to 3 days beyond the closing date”.  This way you can move on the closing date into your new home and still have a couple days for cleaning, carpet shampooing etc.  Otherwise you would have to move out before the closing date and stay at a hotel for a night with your belongings in a moving truck before you get the keys to your new home on the closing date.

We have negotiated these terms successfully many times and most buyers will be patient enough with a short 7-day contingency period and are also agreeable to let you stay for up to 3 short days to accommodate your move.

Step #3.)  Once we have an accepted sales contract with both important provisions on your existing home, we will then aggressively explore all options for a suitable replacement home. Hawaii is a relatively small market. Within just a couple of days we should be able to see all available suitable replacement homes and identify which ones to make an offer on. Hopefully we will have an accepted purchase contract on your top choice for a replacement home within 7 days.

Here are a few scenarios that can happen in the order of desirability:

1.)    Best case scenario: We enter into an accepted purchase contract on your replacement home and add the following important special term: “This Purchase Contract is contingent on the simultaneous recordation of the sale of your current home.”  Because your current home is already in escrow and scheduled to record soon, you have the strongest negotiation position. You look golden to the seller and the seller would be delighted to accept your offer. There should be no ‘kick-out clause’ in this scenario.

2.)    If we identified a good replacement property but did not enter into an accepted purchase contract within the 7-day contingency time period, we could possibly negotiate an additional few days extension with the buyer of your current home.

3.)    In case we could not secure a suitable replacement property within the contingency time period, you or the buyer may cancel the purchase contract and you get to keep your current home. Nothing is lost, you still got your home. You may continue marketing your home until you succeed the next time.

4.)    One more option: You may remove the contingency to be in escrow on a replacement property and opt to sell your home regardless we could not secure your replacement home. This option is short of ideal because it only solves the first part of the dual goal. You sold your home for top dollar. But we have not eliminated the need for you to move twice without yet securing a suitable replacement home. Eventually when we do secure a replacement home, you will already have sold your existing home and you can proceed with maximum financial firepower and negotiation strength.

— The ‘Sell before Buy’ strategy represents the right approach for most situations. It offers far more benefits compared to the ‘Buy before Sell’ strategy. It puts you in a much stronger negotiation position on both the sell and buy side.

It is important to have these provisions written correctly into each respective contract for your maximum benefit, to match timing and mitigate the risk of being without a home.

Happy clients

Happy clients


Summary conclusion:

See what we accomplished using the right ‘Sell before Buy’ strategy with properly structuring the respective contracts:

1.) We obtained the highest possible sales price for your current home.

2.) We successfully increased your purchasing power and got you into the strongest negotiation position on the buy side increasing your chances on getting the best deal to buy your replacement home.

3.) We maintained all options, including the option to keep your current home if we could not secure the right property at an acceptable price and terms.

4.) We eliminated the need for you to move twice.

How about that for the tip of the day?

We have done a lot of these simultaneous back-to-back ‘Sell and Buy’ transactions and we are happy to help. Reach out when you are ready to move forward.


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~ Mahalo & Aloha

‘Buy Before Sell’ vs ‘Sell Before Buy’ – Best Strategy For A Sideways Move In Real Estate was last modified: June 16th, 2017 by George Krischke
George Krischke
Principal Broker (R) Hawaii Living See my other articles
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