Written by Andrew Goodman
Question: How can I sell my home while still needing to purchase one or vice versa?
This is a very common situation. The ideal scenario would be to purchase your new home first while still having your current home for moving and logistical purposes. But that’s not always feasible. There are a few things that can be done to give you some flexibility.
Rent back: A rent back allows the seller to sell their home to the buyer and remain in the home for a specific amount of time after settlement. During this period, the seller is to pay the buyer an agreed upon fee for the rent back period and give a deposit, which is to be held in escrow for any possible damages. During this period, the buyer would now be the owner/landlord of the home and the seller would be the tenant. This allows the original seller to obtain the funds from the settlement to then settle on the new home during the rent back period.
Home of Choice Contingency: This is a contingency in the contract that allows the seller to be in a ratified contract with a buyer, but allows the seller an agreed upon amount of time to find a new home. This is an option for sellers that don’t feel comfortable putting a contract on a home until their current home is under contract.
Now, if you wan to purchase a home but still need to sell your current home, there are some contingencies that can help you.
Sale of Buyers Property Contingency: This is a contingency that allows a buyer to go under contract on a home, but gives the buyer three days to put their home on the market and an agreed upon amount of time to sell the home.
During this contingency period, the seller will be able to keep the home on the market until this contingency is removed. If another buyer does decide to purchase the home, the original buyer will have an agreed upon amount of time to remove the contingency or their “contingent” contract will become void.
Settlement of Buyers Property Contingency: This contingency is different than the one above as you would already have a contract at this point and are just waiting for the settlement to take place.
This contingency would be used if the proceeds from the settlement of the home were necessary to purchase the new home. So this contingency would protect your deposit in the event of the contract falling through on your current home, thus not proceeding with the settlement.
All of these contingencies are to protect both parties. The buyer’s deposit is protected as well as the seller’s opportunity to sell their home.
In most cases, a seller would need to settle on a home prior to purchasing their new home — not just from a cash perspective, but from the loan approval standpoint.
In some instances, a lender may not qualify a purchaser of a property due to their debt to income ratio, where their current home’s debt holds them back from proceeding with their new purchase. If that is the case, timing of settlement is crucial. Sometimes, a coinciding settlement may be the best bet.
A coinciding settlement is when two settlements are back-to-back. A seller would sell their property and then immediately turn around and buy the new one on the same day. This helps prevent people from not having a place to sleep, but does end up being a very tiring day of moving.
As always, consult your realtor and lender to decide what is the best plan of action for your circumstances.