Buying: The Cost of the Sale of Property Condition

Sell first or buy first? 

Many people, when looking at buying and selling, feel very hesitant to sell before they buy, and prefer to find their "perfect" house and make an offer with a Sale of Property condition [A Sale of Property condition states that, if a Buyer's house does not sell within a specified timeframe, their offer is nullified].

However, what many Buyers do not understand is that there is a cost to every condition that they layer into an offer.  I like to term this as the Cost of Conditions.  The Cost of Conditions is best explained by example.

Lets say YOU have your house for sale for $900,000 (you are the Seller).  After a few weeks on the market, you receive 2 offers: a cash offer (NO conditions) for $875,000, or an offer with a Sale of Property condition for $910,000... and the buyer's house is not even for sale yet (believe it or not, this is typical).  

If you take the cash offer, you are SOLD, done, and can immediately move on with your life plans.  

If you take the Sale of Property condition offer, you are conditionally sold, and are now effectively bound to the Buyer's whims in terms of:

i) when they actually get their property on the market for sale

ii) if they price their property reasonably according to current market conditions

iii) how reasonably negotiable they are, if and when offers come in.

There is an opportunity for a Sale of Property condition to be bumped by another buyer, but many buyers will avoid altogether properties that are conditionally sold.

Back to our hypothetical story.  You are a seller, facing 2 offers.  You can accept either, counter either, or reject them both.  What would you do?

I ask this kind of question to many of our Buyers and Sellers, as well as experienced these situations in reality over the past ~10 years.  In most cases, the answer is.... take the $875,000 firm offer, done, SOLD, move on with your life (is this what you would do?).  

So in retrospect, what does this mean?  The Sale of Property condition offer was $35,000 higher, and it was rejected... so it "Cost" $35,000 more to at least be competitive with a firm offer.  In my mind, as a Realtor and investor, this is throwing away equity (tax-free equity, if it's your primary residence, in most cases).  

How much money can you save by selling first and being in a cash offer position?  It depends on a lot of factors (how hot or cold the local real estate market is, your price point, style of property, the perception of risk to the house seller, etc.).  In general, the amount is probably safely between $25,000-$50,000.  Remember, this is (in most cases) tax-free equity.  Most people would have to work for a year or more to save up $25,000-$50,000.

SELL FIRST!!!!