Homeowners looking to move often face a daunting question: should they start by buying a new house, or would they be better off selling their current home first?
The simple answer is that there is no simple answer. What’s good for one person may be the wrong choice for another. Moreover, different markets and different locations present unique considerations that should not be ignored.
That said, you can ask some simple questions to help you make an informed decision. They may not provide easy answers, but they will give you helpful data to consider as you prepare your buying and selling strategies.
Pros and Cons
The Pros of Buying Before You Sell
There are certainly advantages for those who choose to buy a new home first.
For starters, this approach gives you space and time to find what you’re really looking for. You don’t have to worry about anyone else’s timeline but your own.
Speaking of timelines, it also puts you in the driver’s seat when you’re selling your current property. You can negotiate with potential buyers based on the move-in date you’ve targeted for your new home.
This process is also helpful if your new home needs some upgrades. You can structure your sale to give yourself time and space to complete the work without having to live in the mess.
The Cons of Buying Before You Sell
That said, this approach comes with some risks that you’d do well to consider.
If your current home doesn’t sell as quickly as you’d hoped, you may find yourself responsible for two mortgages at the same time.
That pressure can lead to other financial ramifications. You may end up lowering your asking price to offload your old home in a timely fashion. In addition, you may find it difficult – and expensive – to obtain bridge financing. In both cases, you’re paying a premium for the luxury of buying first.
Lastly, if you buy before you sell, you’re accepting a level of uncertainty around your home sale. Since you don’t know if you’ll get more or less than your asking price, your purchasing budget is going to be based on an educated guess.
The Pros of Selling Before You Buy
As you might have guessed, the advantages of selling first mirror the cons of buying first.
In this position, you’ll have certainty about your purchasing budget. As you list your house, you’ll have a clear idea of its market value. Plus, in times of high demand, you might even end up earning more on the sale than you had first hoped.
Your financer will appreciate this certainty, making it easier for you to obtain a new mortgage. There’s also a good chance you’ll earn more advantageous rates for bridge financing since you’ll be dealing from a more stable position.
It should also eliminate the risk of balancing two mortgages. Ideally, this confidence should pave the way for patience, so that you can wait for the right offer instead of jumping at the first one that comes along.
This approach will also enhance your position as a buyer. When you make an offer, the seller will find it more favourable than offers from those who have yet to sell: you’re a safer bet than others who make an offer subject to the sale of their current property.
The Cons of Selling Before You Buy
All that said, there are some drawbacks when you decide to sell before buying your next home.
Once you’ve sold your house, you’ll feel like there’s a deadline to secure your purchase. If there’s a lot of movement within the market, that probably won’t be a big deal. However, if inventory is tight, you may find yourself settling for something less than you hoped for.
This position also puts you at a disadvantage when it comes to purchase timing. If your seller’s preferred dates clash with yours, you’ll likely be stuck looking for a short-term rental or arranging bridge financing to accommodate their timeline.
Best Practices If You Decide to Buy First
If you’ve weighed your options and settled on buying first, start by considering these questions.
What does the market data tell you about average sale time?
When you make an offer and purchase a home, you’re committing to a timeline. So make sure that you have enough time allowed to complete your own house sale. Current market data can help predict how long it will take your house to sell (from the initial offer to final completion).
What’s a reasonable budget for your new house?
Before you start your search, establish a conservative budget. This doesn’t mean settling for second best. Rather, you’re trying to account for the uncertainty around your current home. You want to be protected in case your selling price falls short of your expectations. Learn more in our article How to Price Your Home.
What is the current market for your existing home?
Obtain a realtor’s market evaluation for your current before you purchase your next one. Not only will this prepare you for your eventual sale: but it will also provide important cues for your house hunt. This step will also give you sound data to answer the previous two questions.
What’s your preferred sale and purchase timeline?
If you want to avoid bridge financing, the prudent move is to negotiate your completion and possession dates with a preset timeline in mind. Most buyers in this situation would like the steps to fall in the following order:
- Complete their house sale
- Complete their house purchase
- Move into their newly purchased home
- Move out of their recently sold home
To make all this work, you’ll want to have a few days between your completion date and the possession date. (Again, this is where having a clear plan for your timeline can make the world of a difference.)
Can you include a “subject to sale” condition in your offer?
In most buyer’s markets, you stand a good chance of including a “subject to sale” condition in your purchase offer. This condition means that your offer will only go through to completion if you’re able to sell your current home within a set amount of time. Note, however, that these conditions can be considered a drawback in balanced or high-demand markets.
Is bridge financing a viable option?
We’ve mentioned bridge financing a lot in this post. What exactly is it? In the event that your purchase is scheduled before your house sale, some financers will lend you a down payment out of the equity remaining in your current home. This loan will help you achieve your house sale, but you’ll likely pay a higher interest rate. Moreover, the lender will likely require firm offers on both properties to grant you this loan.
Explore your options with Real Estate Valley
As we mentioned earlier, there’s no one-size-fits-all answer to these daunting questions. What’s best for you depends on your personal situation and your comfort level with the variables outlined above.
But know this: you don’t have to weigh these options on your own.
Rick Clarke and the Real Estate Valley team are here to guide you through this process, whether you’re forecasting your sale or ready to find your next home. We can provide the professional expertise and experience to help you make prudent, informed decisions.
Reach out to us today to start your journey with confidence. We look forward to serving you, whether you’re buying and then selling or selling and then buying.Posted by Rick Clarke on