Perhaps your family has grown, you’re relocating for a new job, or you just found your dream home while browsing listings. Whatever your circumstances, if you already own a home and are looking to buy a new one, you’re faced with a rather common dilemma: should you buy your new home or sell your current home first?
Of course, the ideal situation would be to sell your own property (or at least have a firm offer on it) before purchasing another to avoid being stuck with two mortgages. However, in today’s more uncertain markets, buyers have options to help with this process, including access to financing options.
To learn more about buying before selling your current home, we spoke to Denae McCullough, a real estate agent and REALTOR® in Maple Ridge, British Columbia. McCullough says there are some benefits of buying first, including the ability to be selective with your next purchase, while also feeling secure knowing your next house is already lined up. However, sheadmits there are also some cons.
“You’re estimating your budget when shopping for a house. You also might have to compromise on your sale price in order to get your current property sold on time,” she says.
You might also end up requiring bridge financing or paying out of pocket if your house doesn’t sell and you have two properties for a period of time, she adds, or if your house ends up selling for less than what you were expecting.
Why would someone buy before their home sells?
“Buyers who wish to secure a home before selling their current one can sometimes be particular about what they’re looking for and are focused on finding the right next home without feeling like they have to compromise due to time constraints,” explains McCullough. “They may feel more secure in knowing they won’t end up without a place to live between transactions (if they can’t find their next property before the time is up on their pending sale) because it’s already lined up.”
She explained the strategy of buying first can be beneficial in a sellers market because homeowners can feel more confident their current property will sell quickly after they put it on the market. This strategy can also work well in a buyer’s market, when there’s a “Subject to Sale” condition as part of the buyer’s offer.
What are the things you need to consider when making this decision?
• Market conditions “Market conditions are a very important consideration when making this decision — and something your REALTOR® will be able to educate you on,” says McCullough.
Buying first means you can really focus on finding the right next home without the constraint of time. In a buyer’s market, McCullough says there tends to be a higher inventory of houses on the market resulting in more choice for buyers, and more days on the market before homes sell. This means there’s a greaterrisk your home won’t sell quickly, or at the price you anticipated — and potentially need — for the purchase of your new home to go through.
“The risk here is ending up owning two houses, which isn’t something most homeowners can afford. Although a lot of it comes down to personality type, and a person’s risk tolerance to the different scenarios, market conditions are the number one consideration when deciding to buy or sell first. The market can shift quickly, so seeking the advice of your REALTOR® and learning about the market in your specific community, and the community that you will be buying in is important.”
• Mortgages “When it comes to funding thepurchase of your new home, knowing the exact sale price of your current property is helpful. In a changing market, what you end up selling your current home for could be significantly less than its market evaluation even one month prior. This can affect your mortgage qualification, and leave you with out-of-pocket expenses at closing to help cover the difference in the purchase price versus mortgage amount available to you,” says McCullough.
While bridge financing allows you to temporarily carry a mortgage on two properties, McCullough says it isn’t always an option.
“Connecting with a trusted mortgage professional before you begin your housing search is an important first step that any REALTOR® would advise.”
• Conditions on your offer Choosing to buy first means your REALTOR® will likely recommend having a “Subject to Sale” condition as part of your offer. This means the deal won’t be firm until you sell your current property — or otherwise remove the Subject. However, McCullough explains these can also create more risk in a seller’s market.
McCullough notes offers with a ‘Subject to Sale’ are more commonly accepted. Within those offers, there’s usually additional language stating ‘at any time,’ or ‘upon receipt of another acceptable offer for the property,’ the seller may deliver written notice to the buyer requiring them to waive or satisfy their ‘Subject to Sale’ within a certain period of time or else the contract is terminated. This, McCullough says, allows sellers to accept an offer with a ‘Subject to Sale’ clause in good faith the buyer will market and sell their home as quickly as possible, but still allows them an opportunity to consider another offer if it comes through and the first buyer is not prepared to waive their existing subjects.
• Lifestyle Buyers who want to find their next perfect property and are less concerned about the sale price of their existing home might choose to buy first. Sellers, on the other hand, who prioritize getting the most for their current property and/or have the ability to rent or live with friends or family for a period of time between houses might choose to sell first.
“Lifestyle can come into play here because homeowners who have the funds to cover two mortgages can simultaneously run the risk of holding onto two properties for a period of time, should their current home not sell quickly. Young families or families with school-aged children might be less likely to run the risk of ending up with zero houses for a period of time and having to relocate in between,” said McCullough.
How can a REALTOR® help you make the decision?
“It’s important to remember ‘the market’ you should be focusing on is hyper-local, meaning yourREALTOR® should be well-versed in the community you’ll be doing your deal in, and able to speak to its past and current conditions. Your REALTOR® can also help by connecting you with other professionals toensure the process of buying and selling, no matter the order, runs smoothly,” said McCullough.
During this process, McCullough says goodcommunication skills and problem-solving skills are key when lining up the dates on two separate transactions to ensure the new property is funded and the current property is handed off to its new owners in good timing.
This includes communication between the multiple REALTORS® involved, as well as mortgage lenders/brokers, lawyers/notaries, conveyancers and more.
— Realtor.ca