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Home buying squeeze play
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April 7, 1999: 10:23 a.m. ET
Selling one home while buying another requires planning and skill
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NEW YORK (CNNfn) - Homeowners looking to relocate or simply trade up to a different house often face a squeeze play between selling one home while buying another.
An owner may not be able to buy a new home before getting money from the sale of his current one. Conversely, the buyer feels uncomfortable pursuing a new home before believing the old one will get interest on the market.
Because of the awkwardness of buying and selling such an important part of your life simultaneously, first-time buyers actually get an advantage when it comes to purchasing a home.
"I always tell first-time buyers this is going to be the easiest house they ever buy because they don't have one to sell," said Adam Knolls, a broker at The Buyer's Agent of Central Ohio.
For most other buyers, said Knolls, "You're damned if you do, damned if you don't."
Buyers are forced to choose: should they assure their house is sold before they buy another or should they take a chance on pursuing a different house, even if their current home sits unsold for months?
The emotional aspect of home buying often leads to very difficult times for those on the housing market in this situation, said Knolls.
"I've had people get emotional about a house they want to buy and literally break into tears when they find the house is sold to someone else before they can sell their current one."
On the market
While no one really can know what will happen once their home hits the market, that doesn't mean you can't be an educated seller/buyer before you ever put a sign on the front lawn.
In fact, Peter Burgdorff, chief executive officer of the ERA realty company, said planning is important in helping to make sure you've got the best chance for a smooth transition.
"Understand the housing market in your area and what's going on in it," said Burgdorff, who suggested perusing Web listings and talking to several brokers to get a better handle on how homes are moving.
If your market is like most of the United States, you'll find the housing situation tight. Blame it on a combination of a strong economy, rising wages and low interest rates.
This has a dual effect on your housing move. Your home may sell faster than you expected but the home you may want to buy could be taken off the market before you're finished.
Fortunately, said Burgdorff, many situations where a homeowner is trading up on a house can be arranged so that the closing of the home to be sold can occur on the same day the other is bought.
In fact, it's not unheard of for three or four transactions to happen on a single day, with each buyer closing on one home and buying another as the chain continues.
Some brokers, including ERA, offer a guaranteed buyback plan. Under this deal, the broker will usually agree that if your home does not sell within six months, it will buy the home at a predetermined price.
Not every home will be eligible for the guaranteed buyback program. Usually, the realty firm will assess the house, its location and whether they expect it to sell at some point, so obviously in a hotter housing market, your home is more likely to get accepted for such a plan.
The planning process will require some hard questions, many dealing with the unknown, according to Cathy Wahatley, vice president for the National Association of Realtors.
"You have to ask yourself if you can handle a scenario where you put your home on the market and it sells the next day," said Wahatley. "Would you know how to proceed from there?"
Conditional offers
Many owners may be concerned signing a sales contract for a new home while their old home remained unsold.
You can negotiate a deal with the seller where a provision in the contract states that the closing on the new property won't occur until the previous home is sold.
However, this can be tough to negotiate. "Many sellers don't want a potential provision that would negate a sale," said Wahatley.
Today's strong housing market in most areas makes this doubly difficult and most sellers would take a no-strings offer over a conditional one, say realtors.
You may be tempted to dangle a higher offer in order to receive a conditional sales contract but it may not work. Your lender will appraise the property and if you are offering more than it's appraised at, you may run into financing difficulty.
If you do manage to make such an agreement, make sure all the details are spelled out specifically, she said. You may want some flexibility in case you can't close on the exact date but if it's not in the contract, forget it.
"Once everything is signed and agreed to, renegotiating those things can be difficult," said Wahatley.
Some lenders try to help you across the gap by offering "bridge" loans. These are short-term loans which are made to get you from one home to the next while both homes are still in the closing process.
As with any loan, brokers advice you study them carefully and comparison shop among lenders to get the best deal since rates and conditions vary.
Even if your home isn't sold when you move or if you don't find a new home right away, you have alternatives.
You can check to see if there is temporary housing available in your area, such as corporate suites. In addition, short-term rental apartments may also be an option for you.
If your house is slow to sell and you've tried other methods to get it sold, you can look into renting it.
This decision should not be taken lightly. Tenants could damage the home or at the very least clutter it up, making it more difficult to sell. If you can find more trustworthy tenants, such as friends or family members, this option may be more desirable for you.
While you're making all of these varied decisions, it's important to try to keep your emotions in check so you don't sell your house for too little or grab another house too quickly, spending the next 30 years feeling you made a mistake.
In the end, you'll need to accept the fact that you're taking a chance, said Knolls.
"Buying and selling a house is risky," he said. "There's always going to be an element of risk. Your job is to reduce it." 
-- by staff writer Randall J. Schultz
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