Middle aged couple (30s and 40s), standing in front of house. For Sale sign out of focus in foreground.

When searching for a home, the current seller's market might provide less flexibility to sell your own house before moving forward on a new one. (Getty Images)

Now that the real estate market is climbing out of the doldrums (or now that your family has grown by a member or even a few), you may be ready to buy a new home.

But do you sell your old home first? Or do you buy and then sell?

“It’s always a tough choice to make,” says Anthony Vitale, senior vice president of Better Homes and Gardens Real Estate Atlantic Shores in Huntington, N.Y. “Very few people can afford to buy a home before they sell theirs.”

But, he says, not all buyers deal with the uncertainty the same way. For many, personality determines whether to buy or sell first. He sees two types of buyers: those who have to know where they’re going before they can sell and those who have to know they can sell before they’re ready to buy.

Unfortunately, the current seller’s market in many cities clearly favors buyers who have already sold their homes and have cash in hand. According to the real estate company Redfin, 52 percent of the offers made by its agents in 21 U.S. markets in December were in competition with other offers. “In this market, it is smarter to be the type that has their house sold first,” Vitale says. “You’re in a better negotiating position if you don’t have a house to sell.”

[See: A Step-by-Step Guide to Homebuying.]

In San Jose, Calif., 85 percent of Redfin agents’ offers faced competition, while the number was only 25 percent in Baltimore, indicating that the housing situation varies significantly by location. But it’s still a seller’s market for the most desirable homes in many cities.

At the end of 2013, there were 1.86 million existing homes for sale nationwide, according to the National Association of Realtors. That’s enough inventory to last 4.9 months at the current sales rate, indicating that sellers have the upper hand. For the sake of comparison, an inventory of six to 6.5 months is considered a balanced market. In some cities, the supply of homes for sale is much smaller.

Current market dynamics could play a large role in deciding whether buying first or selling first is the right move. In a buyer’s market, it’s possible to make an offer on a new house contingent on the sale of an existing home. But in the seller’s market that exists in many cities, those kinds of contingencies are unlikely to be accepted.

Those who want to buy before they sell may find they need to offer a higher price or agree to forfeit their deposit to the sellers if the deal doesn’t go through.

[Read: Buying a House? Don't Make These Mistakes.]

Vitale advises his clients to do some homework before they put their house on the market and start looking for a new home.

Start by interviewing real estate agents about the price you’re likely to get for your home. Then, meet with a mortgage officer to find out the loan size you’ll qualify for and determine what home price you can afford. Then look online, drive by or discuss with your agent the homes you could get in your target neighborhood for your price.

If you don’t find anything suitable, maybe selling now isn’t the best option for you. But if you find houses that would meet your needs, you can put your house up for sale knowing that you’re likely to find something to buy.

Theoretically, you could get a home equity line of credit on your old house to come up with the money for a down payment, assuming you have significant equity. But, unless your income is high enough to qualify you for two mortgage payments, plus the home equity payment, that’s unlikely to work. Since the foreclosure crisis, lenders are looking much more closely at borrowers’ income and expenses than they did in the past. Someone who didn’t have a mortgage on an existing home might be able to employ that strategy if he or she could quality for a mortgage on a new home and the home-equity payment.

If you can quality for two mortgages, you could also consider seeking a bridge loan from a relative for the down payment on the new home. You would most likely pay back this short-term loan when your home sells.

[Read: What to Know Before Gifting a Down Payment.]

“If you want to be a good buyer, you want to be lean and mean and have cash to deal with,” Vitale says.

One option for those who want to sell first but don’t want to move into temporary housing while they look for a new home is to rent their old house back from the buyers for a few months. Not all buyers will accept such a deal. But investors and buyers who aren’t in a hurry to move in might be willing, especially for a financial incentive or to be the ones whose offer is chosen among multiple offers for your home.

Vitale advises his clients to sell first if they can. If there are no children and schools involved, renting for a few months can be a good option. “What’s the worst that could happen?” he says. “So you have a little adventure.”

“I tell them to sell first,” he says, “and then you’re the king when you’re the buyer."

Tags: housing, housing market, real estate, money, personal finance, home prices

Teresa Mears writes about personal finance, real estate and retirement for U.S. News and other publications. She was previously the real estate blogger for MSN Money and worked as the Home & Design editor for The Miami Herald. During her journalism career, she worked on coverage of immigration, religion, national and international news and local news, serving on the staffs of The Miami Herald, The Los Angeles Times and the St. Petersburg Times. She has also been a contributor for The New York Times and The Boston Globe, among other publications. She publishes Living on the Cheap and Miami on the Cheap. Follow her on Twitter @TeresaMears.

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