Whether you’re upgrading, downsizing, or simply shifting neighbourhoods, the age-old question in real estate remains: Should you buy or sell first? It’s a decision that can impact your finances, stress levels, and overall satisfaction with the process.
Buy-First
To buy first is exactly how it sounds. Intending to sell your current property, you buy a second property before you sell your current property thereby owning two properties at the same time. This strategy is often used with properties that are difficult to find and/or when the buyer has found their dream home and needs to move quickly to avoid losing it to another buyer.
Sell-First
Conversely, selling your existing property before buying a new one offers a sense of financial security. You’ll have a clearer picture of your budget and avoid the stress of managing two properties concurrently. However, you may need to find your next home quickly to prevent temporary housing arrangements, especially in a competitive market.
So, which is better? Buy-first or sell-first? The short answer to that question is each situation is unique and depends on individual circumstances. To determine the right answer for you, several factors need to be considered:
– What are the current market conditions?
– If necessary, are you financially capable of carrying two properties simultaneously?
– What is your risk tolerance? How can you minimize risk?
– What are your short-term housing options if timing is less-than-ideal?
Market Conditions for Buy-First
The Buy-First strategy is best in a seller’s market with low inventory and high demand. It may be hard to secure a new home amidst fierce competition and potential multiple-offer situations. On the positive side, this also means your current property could sell very quickly.
Market Conditions for Sell-First:
In a buyer’s market with ample options and longer property listings, selling first provides a strategic advantage and makes the process less stressful. In a buyer’s market you will have more choice and avoid the potential scenario of financially carrying two properties at once.
Pros and Cons
There are various pros and cons associated with both the buy-first and sell-first strategies.
Some ways to minimize risk
- Bridge financing
- A bridge loan is a temporary financing option. It is designed to help homeowners “bridge” the gap between the sale of an existing home and the purchase of a new one. You can use the equity in your current home for the down payment on your next property while you wait for your home to sell
- Long close
- A long close means asking for a longer closing date (when money and title are exchanged) on the property you are purchasing. The average closing time is six weeks. A longer close (ie. 12 weeks), gives you more time to sell your current property
- Striking the right timing is crucial when juggling buy and sell transactions. Begin your home search while preparing your property for sale, giving you ample time for house hunting
- Strategy
- Be prepared to re-strategize if you find something you want to purchase before you have sold
Unique Properties
For homeowners with unconventional properties or potential selling obstacles, selling first may mitigate risks. Be transparent with your agent about any property nuances that could affect the selling process, such as outdated infrastructure or condo complications. Their expertise can guide you on the best course of action tailored to your circumstances.
IMPORTANT NOTE: Regardless of whether you think you want to buy first or sell first, consult with your lender and a professional Real Estate advisor before making any decisions.
- Lender: Secure pre-approval for your purchase and discuss the possibility of arranging interim bridge financing in case the home you are selling does not sell in time to complete the new home purchase. While bridge financing can offer temporary relief, it’s not always accessible to everyone. Income will still be the major factor in how much the bank will lend for the purchase, regardless of the size of the deposit.
- Realtor: What is your current home worth? What you think it is worth or wish it was worth may not be realistic and your home’s worth impacts your budget. Get the true market value by having a professional Real Estate advisor evaluate it. Utilize conservative estimates and consider additional expenses like agent commissions and closing costs.
Subject-to-Sale Offer
A subject-to-sale offer is essentially a conditional offer to buy a new home. The condition that needs to be satisfied is that the buyer can sell their existing property by a specified date (usually about a month).Essentially, the buyer aims to secure a firm offer on their property before committing to buying another.
To incentivize sellers to accept an offer with a subject-to-sale condition, the buyer often will offer a higher sale price. However, if the buyer’s home does not sell within the specified time frame, they may not be able to remove conditions and could lose the property they want to purchase. This could also lead to accepting a lower price on their current home.
Subject-to-sale offers, though typically beneficial for buyers, can also provide advantages for sellers under certain circumstances. Sellers lack certainty regarding the timing of the buyer’s sale but can continue to market their property and consider other offers while the subject-to-sale condition is in place. In a slow market, a subject-to-sale offer may be the best deal on the table.
The Bump Clause:
As protection, sellers will typically include a bump clause, allowing them to accept a better offer if it arises, putting pressure on the buyer to secure financing quickly or risk losing the property. This means that if a suitable back-up offer arises, the buyer will have to satisfy or waive their conditions within 72 hours or lose the property.
Buyers should carefully assess their financial situation and market conditions before making a subject-to-sale offer, while sellers should weigh the potential benefits against the risks involved. Ultimately, working with a knowledgeable real estate agent can help you in navigating the subject-to-sale process and ensure a successful transaction for all parties involved.
The buy-sell dilemma in real estate is nuanced and contingent on individual circumstances. Whether you opt to buy or sell first, thorough planning, market awareness, and expert guidance are indispensable. By weighing the pros and cons and aligning your strategy with the current market dynamics, you can navigate this pivotal real estate juncture with confidence and clarity. Call me for guidance. We’ll work through the solution that is right for you.
Information provided here is for educational purposes. It does not constitute legal, financial or tax advice, or imply endorsement of any noted brands or services.
Sources:
Moniz, Carlos (2022) Should you buy or sell first in today’s real estate market?, MoneySense https://www.moneysense.ca/spend/real-estate/buy-or-sell-first-in-real-estate/#:~:text=If%20you%20buy%20a%20new,not%20everyone%20qualifies%20for%20it
Royal Bank of Canada Website. (2024) How bridge financing can help you buy first and sell later https://www.rbcroyalbank.com/mortgages/bridge-financing.html