No rambling prelude or mixed metaphor foreplay this week. Let’s dive right in. We’re talking about Contingent Offers. How to buy and sell/sell and buy at the same time in the same marketplace. What we are ultimately searching for is an effective and graceful strategy to juggle both roles simultaneously. A unified approach to a difficult duality. One that helps us make real life decisions that satisfy both brain and heart.
Here’s are a few basic assumptions about human nature and real estate:
1. We all want to sell high and buy low. We can’t help it.
2. What we are selling is always worth more in our minds because it’s ours.
3. What we are buying is always worth less in our minds because it’s “theirs.”
4. It is uncomfortable to leave the familiarity of the past for the unknown of the future. We want to know our exact future before making a change.
Here’s a side corollary. In order to successfully navigate the labyrinth of buying &selling, we’ve got to invent ways to talk our own ego structures down from the ledge and let a lot of our inherent solipsistic tendencies go.
With contingent offers, always best to keep emphasizing: It’s the relationship between what we buy and sell that’s important. Not the actual dollar amounts. We often get so hung up on the numbers, we insure our own penny-wise/pound foolish results. When making big, big decisions about lives and homes – don’t get hung up in the trees. Keep the panoramic vista of the whole forest right in front of you at all times.
So, here’s why it doesn’t make sense to buy a house first and then sell your current home second:
– In a marketplace that’s moving down – you will contradict assumption #1. In effect you’ll be buying high and selling low because of the market’s direction.
– You will spend your money first without really knowing what you have to spend. Because you haven’t sold your house yet. You may think you know what you are going to get ( # 2) but that isn’t the same as getting it. The market decides that. And remember, your house is worth less to buyers because it isn’t theirs (# 3).
– You risk carrying two mortgages, paying two property tax bills, caring for two homes for some period – that increases the dreaded sell low buy high scenario – (opposite of # 1)
– If you didn’t calculate well – it makes you much more likely to cave in to a buyer’s demands when finally selling your house. At that point you are desperate. (negates # 1 again)
– If you’ve pulled the cash from somewhere else to buy the new home, you are losing opportunity return on that money while you are waiting to sell…more calculus that inverts assumption #1.
– If you are using some form of creative financing to pull off buying first, selling second you’ve sacrificed the ability to lock in the very best long term loan scenario available on the home you are going to live in. Flies in the face of #1
What’s the one thing that buying first and selling second does for you in a market that’s getting softer? It addresses human nature -assumption #4. You feel a whole lot safer emotionally – because you already know exactly where you are going to go. You can move into your future home before leaving your old one. On the flip-side – going to such great lengths not to feel the emotional risk may end up creating a huge amount of financial risk on the other end –which will in turn overwhelm the emotional risk you were trying to avoid.
Next week: How the Selling First and Buying Second Scenario relates to the Four Assumptions