The Buy First or Sell First Conversation
6 min read
The Buy first or sell first conversation
This is an important and complex conversation that we need to get right.
How well we address this conversation will often be a big part of the prospective client’s decision about which agent to hire and the quality of the client’s experience, therefore affecting their willingness to recommend you as an agent.
I believe it should be addressed early in the relationship. The decision to sell first or buy first can only be made by the client and not by the agent. The decision depends on several factors, including their financial situation, risk tolerance, the real estate market, and temporary housing availability.
Our job as professional REALTORS® is to be sure that our clients have accurate and pertinent information so that they can make the right decision for themselves.
Why does it matter?
Making the wrong choice on the question of whether to buy first or sell first could have terrible outcomes for people—financial and emotional stress, legal hassles, anxiety, and worse. There is also significant emotional stress for the agent, which can negatively impact your mindset, and therefore, your other business opportunities. As a veteran real estate industry insider, I recommend avoiding catastrophes at all expenses. They can be career destroyers. No one commission is ever worth it.
What are the major variables?
- Market conditions
- Clients’ financial situation
- Clients’ tolerance for risk
- Clients’ previous experiences
- Uniqueness of the properties involved
- Availability of temporary housing
What about buying with a condition on selling their current home?
This is an excellent risk-free option. Simply put, your client would buy the new home with a condition/contingency in the offer that says they are not committed to buying the new home if they cannot sell their property within a specific time. Many variables are to be negotiated in this type of deal, including length of condition, escape clauses, non-refundable deposits, and many other terms. The downside is that the client will likely pay more for the property, and in many markets, the seller will not consider this type of condition.
Beginning the Conversation
The prospect or client may come right out and ask you the question, “Should I buy first or sell first?” but not always. Often, they assume that either buying first or selling first is the way to go. This may be based on their previous experience, what their friends or family have done, or it could be a well thought out choice. It is important that we know if they are making their decision based on incorrect assumptions because they could be setting themselves up for a fall if so. Once you have built some rapport and trust, simply ask them questions that will help uncover their unique situation and ideally open the door to them learning more and using that information to make good decisions.
Here are some examples of questions that are helpful. Like all language that I offer, make it your own by rewriting it in your own words. Using the seller(s)’ names to add a personal touch, consider asking some of these questions:
- Have you considered the question of whether you want to buy first or sell first?
- You seem to be set on selling your home before buying. Is that a decision that you are comfortable with, or would you like more information about your options?
- I’d be thrilled to take you out and show you some homes. I have an important question before we start. Have you considered whether you would be better off buying first or selling first?
- Buying first certainly ensures that you end up with the new home you really want. Have you carefully explored the risks that come with that decision? Would you like to look at the pros and cons of both options before you decide?
How you ask the questions is as important as what you say. Don’t have a personal agenda about which way you think they should go. It will come through in your voice and body language, and when the client feels that you have an agenda, it can often undermine their trust in you. You may even want to verbalize that you fully support either choice and just want to be sure they consider all the factors in their decision.
What do they need to know?
There are lots of ways to have this conversation, but the following works well. It is simple and easy to understand and brings clarity to the clients.
Begin by simply stating what their choices are.
“You can buy a new house first and then sell your existing home, or you can sell your home first and then go out and buy a new home.”
Give them a quick snapshot of the pros and cons of each option:
- If you buy first, you’ll know exactly where you are going; you’ll be able to choose the house you really want in the neighbourhood you really want. The flip side is that there is always a risk that you may end up owning two homes, or you may end up selling for less than you had expected since we can’t control the market.
- If you sell first, you’ll know exactly how much money you have to buy a new home. The risk is that the ideal home may not be on the market when you are ready to buy, and you may have to settle for a less than ideal home, or you may have to rent a property until something that you love comes up for sale. It may be difficult to find a suitable property to rent.
Ask the clients, “Of these two options, which one seems to make the most sense for you?” and after they answer, ask them, “With that option, what concerns you the most?”
Now you will have a conversation where you respond to their questions and ask them more until you both feel they have enough information to make a good decision. You can even ask them, “Is that enough information for you to make a good decision?” or “Is there any more information that you need to make this decision?”
What are the risk factors?
Buying First – The risk associated with buying a new home first is that they may not be able to sell their existing home. The market conditions are a significant factor, but even in a strong sellers’ market, things can change fast, as we have all experienced multiple market transitions over the past few years.
Selling First – The risks associated with selling the home first is that they may not be able to find a home they would like to buy. Even in a balanced or buyers’ market, inventory levels are at unprecedented low levels, and finding a home may be challenging. They may have to take temporary housing if their closing dates don’t align, and temporary housing can be rare in some markets.
What if they ask my advice?
Give it to them but be sure they understand that they must make the final decision because you can’t control the market, and they have to live with which ever decision they make. When giving an opinion, I recommend you say something like, “If it was me, I would…” “The reason that would be right for me is…” “That doesn’t necessarily mean that this decision would be right for you.”
If it is a strong sellers’ market, they have a good property, and they are reasonable about their expectations, then a suggestion to buy first is likely best. Remind them that there is always a risk of things happening that can change the market and that they need a fallback plan–they need to be prepared to put their home on the market immediately upon buying to reduce the risk.
If it is a strong buyers’ market and there are many similar homes on the market, a likely suggestion would be to do the hard work of getting their home sold first.
If they want a one-of-a-kind waterfront custom-built home and there is only one of them, you will want to carefully assess all of the factors for them to determine if they can tolerate the risk of buying first.
A wise old agent once said, “I’ve never seen a person with $500,000 in equity living on a street corner.” The message is that selling first and having the money in hand is generally a less risky option for most.
Some agents and brokerages have tried to gain market share by guaranteeing the sale of the back-up property to remove the risk for the client. They assume the risk and if they are lucky, the home sells and it all works out, but this has been the demise of many REALTORS®.
Another option for sellers worth exploring is to sell their property on the condition that they are able to buy something within a certain period of time. It would reduce the number of potential buyers and likely have a downward effect on the selling price but could help them manage the risk. With the extremely low inventory, it may be possible to obtain a fair offer.