When One is Both a Seller and a Buyer
By Diane Saatchi
If you’ve ever sold your Hamptons home and bought another — or vice versa — you probably think this blog is about you.
But I’m not Carly Simon, and this blog isn’t really about you. It’s about human nature.
I’ve worked with many sellers who are also buyers and each time, I’ve had a burning question I’m generally wise enough to keep to myself: How is it that the property you no longer want is worth a top-market price, while the one you are dying to own should be sold at a discount?
And, a related question: How can you be insulted by a low offer, but not at all reluctant to present one?
It might sound like a case for psychotherapy, but when you think about it, it makes sense that one person can be of two minds.
Real estate may be necessary shelter, but it is also an investment, and we’ve all learned that when it comes to investing, the objective is to buy low and sell high. Unfortunately, being overpaid for your house while underpaying for another is extremely uncommon (and not quite what “buy low, sell high” means, anyway).
Photo by Todor Tsvetkov
More than the numbers, though, I’ve found that emotions color these transactions. The property, which you no longer need or want, is familiar, faults and all. It is known, it has been loved, and it is associated with memories that make it very special. The property to be purchased may be desirable, but it’s also unknown … and the unknown can be scary.
It is not easy to let go of something familiar (and likely affordable) for someone else’s unfamiliar and seemingly overpriced home. Same goes for trading down for a smaller property. Even if the net change will result in some money in the bank and a lower overhead, it’s hard to give up the space filled with all the things you cherish, needed or not.
So much for the emotion — now, some reality.
The smartest financial decisions in these situations are (surprise!) the hardest for most people to accept emotionally.
Applying the sell high/buy low model, the best situation would be to sell in a seller’s market, when prices are high, then wait until the market turns so you can take advantage of a soft market to purchase. However, that means carrying the costs of two homes at once, while you wait for prices to decline. For some, that’s doable, and for others, it’s a stretch. The truth is that you can’t time the market [Buying and Selling in Today’s Market], but if you have the wherewithal to carry both, you may be able to benefit from market fluctuations. I say may because this tact can work if the rising market out paces the cost of maintaining the not used property.
If owning and carrying two properties is not your thing, it makes most sense to sell when you are ready to sell and to hold off on even looking for the next property at least until you have a fully executed non-contingent contract to sell.
This all sounds very practical and makes sense from a financial perspective, but it’s not as simple as it sounds. I find people don’t want to give up beloved house number one until they know what will replace it.
Sure, it’s not impossible that the seller of the property you want will accept your offer subject to selling your existing home. But again, it’s extremely unlikely. You’re a seller, too — would you? Chances are, when trading in the same market, you will go through a period of owning either two properties or none at all.
Most of us overreach on what we will realize when we sell and underestimate what it will cost to buy because ... because we do. I told you this blog was about human nature.
That thinking, that our home is worth more because it’s our home, but a new house is worth less because we aren’t attached to it, causes us to look at more expensive properties than we should when making a trade. To avoid disappointment, sell first so you know what you can spend. Looking above your budget is sure to end badly.
Buying a home is a lot of work, and so is selling one. Doing both at the same time is even harder, but it’s not impossible — especially if you have the funds, time and discipline to make two good decisions. Remember, whether it’s a buyer’s or a seller’s market, you’re going to be on the right side of one of the trades.
© 2018 Diane Saatchi