If you have to sell your property in order to buy your next one – do you Buy First or Sell First?
One of the biggest considerations to make when you’re thinking about selling your home is whether or not you should buy your new home before selling your current home – or – sell your current home before buying your new home? Both options come with pros and cons and both options still require you to arrange the closing dates properly if you want the move to be smooth.
The ideal scenario is to buy and sell at the same time, and to arrange to the dates so that you can purchase you new home and move into it before you have to be moved out of your current home, but there is some finesse and some luck involved in ensuring the dates are arranged appropriately. The finesse is ensuring that you have given yourself the best opportunity to accomplish this, and the luck is hoping the other parties in your transactions agree with the dates!
The ideal arrangement of dates for a purchase and sale would go as follows:
- Day 1: Completion Date of your Current Home. This is the date you receive the profit from your sale.
- Day 2: Completion Date of your New Home. This is the day you purchase your next home. You will use the profit from your sale in addition to your new mortgage and extra down payment to buy your new home.
- Day 3: Possession Date of your New Home. This is the day you get the keys to your new home and *must* move.
- Day 4: Possession Date of your Old Home. This is the day the Buyer gets the keys to your current home and will be moving in. Typically, you’ll arrange cleaners for this morning so the property will be clean and ready for the Buyers around Noon.
Below I’ll go through the details of the potential scenarios. Which scenario you choose depends on your risk tolerance, the property you currently own, the property you want to buy and the market in general. When we’re chatting about your potential sale, I can give you an idea of how marketable and in demand your current home is, and how common your ideal next home is to help you decide if you want to buy or sell first. This post is a generalization of the process, so if you’d like specific advice, give me a call.
Sell First
By selling your current home before you buy your new home, you will know precisely how much money you have to work with on your next purchase. With a concrete price range, you’ll be able to narrow the pool of options before you begin looking, and negotiate accordingly. This will grant further negotiating leverage as Sellers tend to take offers without financing subjects more seriously, which is a lot easier to offer if you have sold your current property.
The flip side of this scenario is that if you don’t find the right property before the completion date of the property you’ve already sold, you may have to look for temporary housing until you find your next home. Not only do you have to find a rental (which is harder than you’d think) but you may have to move twice (ugh). There is the possibility to rent a furnished apartment and put your belongings into storage for the time being, but it would still be a hassle. Ask yourself how you would cope with living in a transitional home for an undetermined period of time. This is often harder for families with kids.
One other potential issue with selling first is timing the market incorrectly. If your sell your property first, and the market continues to increase in price, you may find it harder to close the gap in price between your current and new home, and could be priced out of your ideal market.
If the market is slow, you’d likely be better off selling first in case it takes longer than expected to unload your current home. A slow market means you should have an easier time buying your next home.
If you decide to sell first, you’ll want to give yourself a long Completion Date to give yourself a few months to find your next home. In addition, it would be helpful to ask the Buyers if they would be willing to give you some date flexibility. We would accomplish this by including a term in the contract that would allow you to change the Completion and Possession Date of your sale to a new date of your choosing (i.e. anytime between March 15th and April 15th). This clause typically requires you to give the Buyers a certain amount of notice (say 3 weeks before they would have to move). The Buyers give up a lot of control with this clause, so it’s not guaranteed that they will agree.
In general, you’re better off starting this process at the beginning of a new market (i.e. early Spring or early Fall). The real estate market generally slows down in July/August and December/January, so you don’t want to sell your property just before everything slows down because there will be less inventory to consider and nothing good to buy!
Buy First
Buying a new home without having sold your current home may occur if you come across a home you absolutely love or if the market to buy is competitive and uncertain. While buying first can often be more convenient (you won’t be homeless!) beware of the risks. If you buy another property and aren’t able to sell your current home in time, you could end up having to pay two mortgages and shoulder the extra debt until you sell. This can get really expensive, and frankly, this isn’t possible for everyone based on their financials. Make sure you check in with your mortgage broker to understand if this is possible from a mortgage approval perspective and to find out how much it’ll cost you.
Since the selling price of your current home is unknown, jumping into a purchase could be a gamble, particularly if your budget is tight. You may time the market wrong and end up buying your property at a high point and selling after a market drop, so make sure you have a lot of give in the eventual sale price of your current home. Familiarize yourself with all the financial risks this scenario would create before you move forward.
If you purchase your new home first, you can ask for date flexibility from the Sellers of your new home. Again, it’s not a guarantee that the Seller of your new home will agree since they would give up a lot of control, but it’s worth asking. If not, ensure the Completion Date is months away so you have time to sell.
You may end up taking a lower offer on your current home in order to get it sold in time and with the best possible dates. You’ll know the specific dates you need the Buyer of your current home to agree so you’ll have to hope interested Buyers agree with your dates.
I often suggest to my clients that we prepare your home for sale and get photos done ahead of time so that we can list the property quickly if necessary.
Buying and Selling Concurrently
The most secure way, though one that isn’t particularly easy, is to buy and sell concurrently. With this strategy we will list your home for sale and then you can start offering on properties to buy “subject to sale of your current home”. This means that you would not be obligated to purchase your next home if your current home doesn’t sell. This strategy is tough because there are many home sellers that don’t take offers “subject to sale” seriously, especially if their property is in high demand. You lose all of your negotiating power, so it can be hard to get an accepted offer on your next property with this clause in the contract. In competitive Vancouver Markets, this clause is very rarely used because Sellers typically have plenty of interest from Buyers.
“Subject to sale” clauses often have a time period involved. For example, if the Seller receives another offer, they could give you 72 hours to either remove subjects to make the purchase official or terminate your offer so they can accept the new offer. Is this time clause is added to your “subject to sale”, then you want to make sure that you have a “subject to purchase” clause in any accepted offer for your current home. The reason being you don’t want to officially sell your current place if you can’t officially buy your new place. Sound complicated? It can be. Make sure you understand all scenarios and are protected contractually and financially.
If you have any questions, or want to chat through your particular scenario, contact me: kristi@realestatevancity.ca or 778-387-7371.