Selling one house and buying another is like putting yourself between a rock and a hard place.
If you set both closings within the same basic time frame you run the risk of ending up with two mortgages or much worse.
If you schedule them with sufficient time between to solve any closing problems you face the prospect of renting and moving twice.
This is not a rare occurrence -- the National Association of Realtors, or NAR, estimates 6.24 million homes were bought or sold during 2006, and unless you were a first-time buyer or kept your old house as an investment property, most of those transactions involved buying one house and selling another.
But there are steps you can take to protect your best interests.
A dual real estate transaction means you have two choices: a simultaneous closing or a staggered closing. With a simultaneous closing, you set these two transactions as close together as possible, often on the same day -- usually selling first and buying second. With a staggered closing, you build in some time between the two transactions -- days, weeks, months or even more.
First, the bad newsWith a staggered closing, you incur the cost of renting in the interim. You may have to find a place to store some of your belongings and deal with the hassle and added expense of moving twice. You're losing the equity you could be building in a new home. And there's the ever present danger you'll fritter away the profits you've banked from the last sale before you can get into your next home.
A simultaneous closing also has disadvantages. If something goes wrong in the first transaction, you could find yourself in big trouble.
If the first closing fails and you don't walk away with a big fat check, you may not be able to close on the house you're buying. Which could mean you're defaulting on that contract and could lose your earnest money deposit -- often as much as 10 percent or 20 percent of the purchase price.
If this happens at the last minute you, of course, have nowhere to live and have to immediately arrange to have all your possessions put in storage. Obviously this situation could lead to many other expenses and inconveniences. If you're more fortunate, you could quickly arrange for an extra loan to enable you to close on the home you're buying and to cover the period in which you own two homes -- so-called "bridge" financing. At best, you would only have the burden of making two mortgage payments every month.
Kristina Grebener has seen the problem from the inside. When she and her family planned to buy a bigger house in their same Madison, Wis., neighborhood, they didn't anticipate any problems. The market was hot and properties were moving. They found the house they wanted, made an offer and set the closing date for late July, thinking they'd have sold their old house by the end of June.
But in the interim, there was "a cooling in the market," Grebener says. A lot of nearby homes went up for sale, and "the buyers weren't there to support that," she says.
The family closed on the purchase in July as planned, using a home equity loan on their old house to make the down payment on their new home. But they have yet to sell their first home or move. Counting the new mortgage payment, the home equity loan and double utilities, keeping the old house is costing the Grebeners an extra $2,600 each month.
"Every month I make a mortgage payment is lost money," she says. And while the family can afford it for now, it's putting a dent in their budget -- especially with kids just a few years away from college, she says.
"It's like a game of musical chairs," Steven Rick, a senior economist at the Credit Union National Association, says about coordinating closings. "It's a function of the housing market. Now that it's unraveling, you definitely do not want to be buying a home without selling yours."
Ron Phipps, a broker with Phipps Realty in Warwick, R.I., agrees.
"Very few people have the ability to own two properties with ease," he says. "For some people, the closing date is as pivotal as the money." So the goal is often to schedule the home sale first, then set the home purchase within the next 24 hours -- often for later that same day. "Doing simultaneous closings is really the goal."
But finding a buyer to close on your home at the exact minute you find a home to buy yourself isn't always easy. More often than not, you've found one without the other -- and that can make setting the closing date a tricky proposition.
"For real estate practitioners, this is always the hardest part of the transaction," says Phipps. "Typically, you have to have the house you're selling cleared out at closing." But just as often, "you need money from the first house to close on the second house."
Just like staggered closings, simultaneous closings should be carefully planned. "It needs to be done with good advice and the best precautions," says Dave Dalzell, a regional vice president of the NAR and the owner/broker of Abilene, Texas-based Dalzell Realtors.
Another potential downside of a simultaneous closing: If the buyers know you're in a time crunch, they can use it to squeeze you for extra considerations at the last minute -- like getting you to pay for decorating upgrades or more of the sale costs.
A Fort Lauderdale, Fla., couple told Bankrate they were "held-up" by the buyers of their home in this manner. "An inspection had showed a slight leak in a shower and so we had it repaired by a licensed plumber a few weeks before closing. To make sure it was done right, we had the entire shower removed, a new shower pan installed and the entire bathroom retiled. At the closing table, the buyer said he wouldn't accept the repair because it had not been done by someone of his choosing and refused to close. This was the third delay in closing, and the buyer knew that we had to close on our new home that day or lose a $20,000 deposit. In the end, we had to give the buyer a $5,000 credit to get him to close. It was highway robbery."
It can wreak havoc if something goes wrong with the first part of the transaction," says Phipps. And nine times out of 10, if something does go wrong it will be with the first sale, not the second, he says.
The time constraints can also pressure you to gloss over closing details that may need further examination. This is one instance when it can really pay to have your own private closing attorney review the records ahead of time and either attend the closing with you or be available by phone to handle any last-minute questions or complications.
Before you agree to a simultaneous closing, analyze your buyer.
Do the old gut-check test, too. What do you really think of these people? Are they fiscally and emotionally sound? Are their requests reasonable? And are you getting a fairly consistent message from their camp or do their needs, demands and dates keep changing?
Look at your side of the table, too. What are your resources and risks? Can you get interim financing if you need it? Exactly how much would it cost? Do you want to put your stuff in storage and rent for a month or two? How soon must you close or move?
Dalzell remembers one friend (not a client) in another state who called for advice when his closing went awry. When the two of them put a pen to paper, Dalzell demonstrated that the man's interim financing option would only add $500 to the cost of the deal.
That's why you have to analyze all of it," he says. Ask yourself: What's the worst that can happen? And put a number on it. Then consider: What's the best that can happen? And put an estimate on that.
So which is safer -- the simultaneous closing or a staggered version?
"There's a risk no matter what you do," says Dalzell. "There's no easy way to do it."
What you can do But there are some steps you can take.
1. Specify contract terms. First, if you have to sell a home to buy your next home, put that into your contract. That way, if your first closing doesn't occur you will have the choice of whether you still want to close on the purchase. In a market dominated by sellers, this sort of contingency clause will rarely be accepted, but in a buyer's market sellers will be more likely to accept this as a condition of sale.
2. Select date carefully. Next, put a little thought into the actual closing date. Sometimes, buyers or sellers want to close in a specific number of days and will pick a date without looking at a calendar -- which can create confusion if it falls on a weekend, says Phipps. Instead, pull out the calendar. "Set it for a date you can make things happen," says Phipps. In case you need some missing piece of paper or additional information, close on a weekday and don't set it for the very end of the month. "The end of the month is crunch time for mortgage companies, title companies and escrow companies," says Phipps. "Pick another day." And set it for early in the day," he says. "Don't try to do simultaneous closings at 3 and 5 in the afternoon."
3. Have a plan B. If you schedule a simultaneous closing, have a backup plan for what you do if the first closing doesn't go off as planned.
4. Be an early bird. The real secret of any closing -- simultaneous or staggered -- is to get as much as you can done in advance. You don't want everything being done in the last 24 hours," says Dalzell. "You want to back things up as far as you can." And that includes everything from repairs and final inspections, to reading the closing documents and negotiating moving dates. Many times a sale is contingent on a professional home inspection. Get that out of the way right after the offer is accepted. That way, if the inspector finds a problem, you have time to either fix it or rework the price well before you have to actually close. "It doesn't make sense to create challenges close to the closing," Phipps says.
5. Line up your money. At the same time, finalize the financing, says Phipps. Then, when those two steps are complete, do the title search.
Dana Dratch is a freelance writer based in Atlanta.
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