Q. I own a two-bedroom condo worth roughly $1.5 million, with a $300,000 mortgage and $500,000 in the bank. I want to buy a three-bedroom for between $2.25 million and $2.5 million. What’s the best strategy to do this? Should I sell the current place and rent while I look? Or make an offer on a new place and hope to sell before I close?
A. The unfortunate trade-off of being a seller in a seller's market is that, often, you wind up being a buyer as well, and this is particularly tricky when you're in the market for pricier digs. While a host of personal factors will go into this decision, our experts recommend that you sell first—or at least line up a buyer, even if you don’t close on the deal—before you seriously bid on a three-bedroom.
“In this competitive and inventory-starved market, it is best to go to contract on your current home and then proceed with a purchase,” says Douglas Heddings, the executive vice president of sales at the brokerage CORE. “No seller will go to contract contingent on the sale of your home." In other words, many sellers these days have their pick of buyers, and no one wants to hinge their own deal on the success of yours.
From a financing perspective, “the easiest and least stressful scenario is to sell first, get pre-qualified from a bank for a new mortgage, and rent while you are looking for your next home,” says Robbie Gendels, a senior loan officer in the New York City office of National Cooperative Bank.
Plus, if you’re looking to buy a co-op, the board may look askance if you haven’t at least listed your former home.
First, put your place on the market, so “you can start your search right away and try to narrow your focus or investigate various new developments or new neighborhoods,” says Gordon Roberts, a broker at Sotheby's International Realty. Check out real-life three-bedrooms in your budget—both for sale and rent—to “give you some comfort that you will find something,” advises Heddings.
If and when a buyer pounces on your condo, “you may have enough leverage as a seller in this market to extend the closing date on your sale," says Heddings, so that you could delay actually giving up your condo until you snag the three-bedroom.
Or, if you don’t find a place right away, your fallback position could be to rent short-term while you keep looking. “A period of renting might be carefree fun and give you an opportunity to test drive an otherwise unfamiliar neighborhood,” suggests Roberts.
Alternatively, “another option is a post-closing possession agreement whereby you sell and close on your current home and then become the tenant of the new owner at a market rent for a finite period of time,” Heddings says. “Attorneys aren't fans of these but they may be a solid option.”
In any event, unless you close on the sale first, “you will need to have sufficient income to carry both mortgages, maintenance and/or common charges, etc.,” says Gendels. “Have sufficient funds for the down payment and show that you have your current home up for sale—an agreement with a broker is sufficient.”
Some options for drumming up a down payment while you’re still paying off the mortgage on the two-bedroom: selling off other assets, like stocks; hitting up your parents for a gift; or taking out a home equity line of credit.