If you already own a home and are looking to sell and buy your next home, you'll have to decide whether you're going to find your next house first, or sell the one you have first.

Not surprisingly, this can be a very difficult and stressful decision.  

Most people start shopping for their next home first.  I can understand this.  People are very hesitant to sell their home until they know that they've found a suitable replacement.  Nobody wants to be homeless.  But as I hope to show you, you'll pay a HUGE cost for the security of this decision.  HUGE.

Let's consider the two scenarios:

Scenario #1 - Buy First, Then Sell

Having decided what you want in your next home, you go out and start shopping.  Let's assume, for our examples, that you own a modest house in a good neighbourhood that has a market value somewhere close to $250,000.  Your next home is an upgrade, somewhat larger with more to offer, that will likely be around $300,000.  This is not an uncommon scenario.  

When you find a suitable next house, it is indeed worth something close to $300,000.  What's next?  Well, next is to write an offer on it. However, remember that your ability to buy the next home is dependant on your ability to sell the one you have.  For this reason, you'll have to write your offer conditional on the sale of your house (which is not even listed yet, mind you). 

Now consider your offer from the sellers point of view.  Here they have an offer to purchase that is shaky at best.  It's conditional on your ability to sell you house.  They have no control over whether you'll be realistic with your pricing when you list your home. They have no way to predict how long it will take you to sell your home, or whether you'll be able to do it at all!  This is not a very appealing offer from a sellers point of view. 

So how can you make your offer more appealing, assuming you need to keep the condition of the sale of your property?  Well, the short answer is offer more money. That's the most likely way you'll be able to entice someone to 'take a gamble' on your offer. How much more?  What do you think? $10K more? $15K?  Hard to say.  Let's be conservative and assume that $10K more would be sufficient to get them to agree to your terms. 

However, we're also assuming that without that condition you'd have offered full price, which may not be the case. But let's not even consider that.  For our example, we'll assume that it's only $10K more.

But we're not done yet.  If they accept your offer, they will almost certainly insist on a 24-hour Clause.  This means that they can continue to show the home and, should they find another interested buyer with an offer they'd prefer, they can invoke the clause and require you to release the condition or lose the deal.  Now THAT'S pressure!  You now have to race to get your home on the market and sell it as fast as possible, because at any moment you know you could get the call that kills the deal. 

So what do you do if you have a house that you need to sell quickly?  How can you make it more appealing to buyers?  Simple truth: Lower the price. By how much?  Again, hard to say.  Again, maybe $10K?  $15K?  Once again, we'll also be conservative and assume that a $10K 'discount' on your home will get it sold quickly. 

So now, you've paid $10K more for the home you want, and received $10K less for the home you have - and for what?  What did that lost $20K in negotiating power buy you?  It bought you the sense of security that you would not be stuck without a home. 

Let's consider the other scenario:

Scenario #2 - Sell First, Then Buy

Having decided it's time to move on, you list your home first, and ask for a reasonably lengthy possession date (maybe 3-4 months off?).  An offer comes in and, in order to make the offer as strong as possible, the purchasers have decided to agree to the possession date that you've asked for. You decide to accept this offer.  

Ok, take a deep breath.  You now know a few things: You know:
1) When you need to be out of your current house
2) How much equity you'll be pulling out of your current house
3) That you can write a clean offer, not conditional on the sale of your home, thus strengthening your offer

So now you get down to the serious business of buying your next home.  Granted, you've got a deadline and the pressure may feel a bit greater.  However, when you do find that home you know your offer can be strong and you have increased negotiating power.  Remember, in our example, you've also got $20K more in your jeans!

And what if you don't find a house quick enough? What if, when you do find a house, the possession days don't work out and you'll be "homeless" for a month?  What then? 

Well, if you consider that you've got that extra $20K to play with, you can set you and your family up in a really nice hotel suite for a month (if you really had to), pay for professional movers TWICE, and still have the lions share of that $20K remaining.  That's probably not such a terrible "works case scenario, is it now?

It's hard for most people to think this way, but it can make a really, really big difference in the end. 

Not that long ago I found myself writing an offer with a client that I'd only met once and only showed one home to.  This isn't necessarily the norm, but it happens often enough.  One of the challenges with a situation like this is that the relationship is still very young, and I know it takes time to develop trust and rapport.  In this case, it was pretty clear that I hadn't yet earned that trust from this client. 

I am extremely conscientious when it comes to serving my clients and I know that I am always offering the very best advice I can to serve my client's best interest.  I know that.  However in this case, the client didn't yet know that. 

The scenario was an all-to-common one in Winnipeg's hot Real Estate market. We were in competition against two other offers.  The price the client had suggested offering was a good one, and I felt pretty confident (as confident as you can ever feel) that he stood a good chance of winning this bid.  His terms were good, and the price he suggested was exactly what I felt would win the deal. 

Then he suddenly changed his mind.  At the last minute, as we were writing up the offer, he decided to reduce his offer by a substantial amount (about 5% of the value).  I knew that this lower offering price was never going to win him the home.  I let him know that, because he was competing against two other offers, he should not expect a counter-offer. My first thought was that maybe he'd changed his mind about wanting this home, so I asked him that very question.  He insisted that he did want the home very much.  I asked why he was reducing his offer by so much and he told me he thought that's all it would take to get the deal.  I was sure this was wrong and it was going to cost him the house. 

The whole thing just didn't add up to me.  Here he was insisting that he wanted the home, he was financially ready to make the purchase at his original offer, and I was telling him as plainly as I could that I didn't think his lower offer would hold up, and yet he wasn't listening. Why not?  It was then that I realized the problem. He didn't trust me.  He didn't trust that I had his best interests in mind. He felt, I'm sure, that I was just trying to talk him into spending more to increase my own commissions.  Huh.

In reality, I can understand why he'd feel that way.  We'd known each other for such a short time and he had no reason to trust me...yet.  I'm sure if we'd have spent more time looking at more houses, he'd have recognized that my intentions were honorable and it would have been a different story.  But in this case, it didn't work out that way.  In this case, he was really only interested in this one home and we hadn't spent any time working together, outside of looking at this one home. 

In the end, we wrote up the offer just as he wanted with the lower price and I presented his offer.  Not surprisingly, I received a call a short time later letting me know that his offer had been declined. I phoned my client back to pass along the news and he seemed genuinely surprised. He asked if he could increase his offer to price he'd originally suggested and I told him it was, sadly, too late to do that.  They'd already accepted another offer.  

The home sold for exactly the same price as he'd started out intending to bid, but with terms that were less favorable than our offer.  It was frustrating because I knew that if he'd have just trusted my advice he'd have purchased the home he wanted, but there was little I could do at the time to persuade him.  All of the benefit I brought to the equation was negated because I didn't yet have his trust. It was disappointing. However, there was a lesson in all this.  I don't blame him for not trusting me. It's understandable.  But he would have been much better off if he had established a relationship based on trust with ANY competent REALTOR and followed the advice he was given. 

This is why it is so important to develop a relationship with your REALTOR early on in the process.  Ask lots of questions and pay attention.  Find out if you can trust this person and, once you've established that you can, make use of the advice they offer.  If your REALTOR is working to serve your best interests above all others - something we're all called to do all that time - rely on his or her experience and professionalism.  And if you decide that, for whatever reason, you can't trust your REALTOR... find a new REALTOR!