Bridging the Gap Between Selling
Your Home and Buying a New One

Selling a home while trying to close on a new one may be among the most-daunting parts of homeownership.

If you buy before selling, you run the risk of owning two homes. If you sell before buying, you could end up homeless. It's a puzzle that comes with stress from all corners, from making sure your children get enrolled in school on time to avoiding spousal warfare over whether to accept an offer.

"Right along with marriage, death and divorce, moving can be one of the most stressful things in people's lives, especially when you're trying to buy a house and sell your old place at the same time," says Kim Soule, a senior associate with the Corcoran Group in Brooklyn, N.Y.

When the housing market is hot and houses are going quickly, some people pounce on a new home before they've sealed a deal to sell their old home, confident a strong market will work in their favor. To be sure, the chance of ending up with two homes -- and two mortgages -- increases in a cooling market as it becomes tougher to sell in a hurry.

"Usually no more than 10% [of home buyers] get caught sitting on two mortgages even when the cycle is turning," says Norm Miller, director of the Real Estate Center at the University of Cincinnati. "But when the market is starting to slow, you'll certainly see more people caught in that circumstance. It may have been 5% before, now it may be 10% but even more in hyperactive markets" like California and Florida.

There were 2.8 million existing houses and condominiums on the market at year end, up 26% from a year earlier, according to the National Association of Realtors. While existing-home sales were still strong in the fourth quarter, rising at the third-highest pace on record, the association said it expects sales of existing homes to fall by 4.7% this year and median home prices to rise an average of 5%.

"Sellers were calling the shots" six months ago, says Mike Mahfouz senior vice president and divisional manager at GMAC Mortgage in Paramus, N.J. He says fewer people were looking for bridge loans, or interim financing arrangements between buying and selling, to cover mortgages on two homes. But the tide is changing. "Now it's become more of a buyer's market, or a balanced market shifting in the buyer's favor" making bridge loans among potenial buyers more popular.

So what do you do if you want to sell and buy at the same time in a cooling market?

The Online Journal offers tips on managing the buy-sell dilemma and a look at financing options. Also, read profiles of people who've done it well, and folks who have struggled.

Numbers Game

Too often homeowners neglect to consider recent sales in their own neighborhoods. Before listing your home, research sales prices of homes comparable to yours and talk to brokers in your area to check how long homes sat on the market before selling. Also, investigate the latest market forecasts. The National Association of Realtors Web site provides forecasts for national trends, while regional realtor associations offer guidance on local markets.

If you've bought a new home but can't sell your current home, holding out for your initial asking price can backfire in the long run. While a disappointment, cutting your price sooner rather than later can significantly stem the cost of maintaining two homes. "If have you have the financial resources to carry two houses maybe you can wait, but sometimes your first loss is your best loss," says Kenneth Haber, general counsel at Prudential Douglas Elliman Real Estate in New York. Timing on when to accept an offer depends on whether you're under the gun to come up with cash to cover both houses, says Scott Gutterson, a New York real-estate attorney. But, he says, "if there's ever going to be a bargain in the market, it's going to be [a house owned by] somebody who bought before they sold."

Careful Contingency Plans

From a buyer's point of view, a home-sale contingency contract is the only bulletproof way to ensure you don't have to close on a house if you can't sell your current home, says Mr. Haber.

Contingencies are written clauses in your contract, giving you time to secure financing or evaluate some aspect of the property before you proceed to closing. If contingencies aren't met, the wording should allow you to back out of the contract at no penalty. Some sellers will agree to a contingency in the contract that says the sale is dependent on the buyer selling his current home.

But a potential buyer's home-sale contingency can make a bid unattractive, as sellers generally want to avoid agreeing to this contingency at all costs. Sellers are only likely to agree to this type of contingency if the market is slow and offers are below par. Some sellers may compromise and suggest a contingency clause allowing them to keep their house on the market but giving the buyer right of first refusal if another offer comes through before the buyer has sold his house.

Take On Tenants

If you've purchased a new home but haven't sold your old one, consider renting your home temporarily while you keep it on the market, even if it means offering a deal to renters in exchange for permission to show the place. You will at least get income to cover your mortgage or other costs. With mortgage rates rising, the rental market is expected to get stronger in many areas of the country, and it may be a lucrative move if you can't close on a sale.

Pay Rent to the Buyer

If you've sold your home but haven't yet found a new one, consider a rent-back situation, paying rent to the new owners, to extend your moving date. You may want to offer to cut the price if the buyer is flexible on the occupancy date and will allow you to stay in your house for a certain period of time.

Throw In Super Bowl Tickets

It might work to offer enticements to get one party to extend the closing date: One broker said she has heard of people offering to throw in the garden furniture or even a pair of Super Bowl tickets to get some flexibility on the closing date.

Let the Brokers Deal

Brokers may step in to offer perks to make the deal go through. If a seller is trying to extend the closing date but the buyer needs to get into the new place, brokers sometimes offer to cover the costs of temporary quarters for their client just to seal the deal. One broker said she offered to pay for hotel accommodations when a deal was about to collapse. "I'm not going to let a deal fall apart over one week when we're talking about $4 million worth of real estate," she said.

Play the Sympathy Card, With Care

Developing a rapport between buyers and sellers may help when working out details if one party doesn't yet have a new house to move into. But it can also backfire. "In some instances, creating a rapport between the buyer and seller can be beneficial," says Ms. Soule of Corcoran. "It can create some empathy but some sellers don't want to hear that you have four kids and can't move until school's out in June." But some sellers want nothing to do with the buyers if they're very attached to their home or it's been a contentious situation, she says.

Email your comments to rjeditor@dowjones.com.