When you’ve finally chosen it’s time for a new house it’s always a tough choice to decide on whether to buy first or sell first. Most people are not in the situation where owning two homes is financially possible and of course you don’t want to end up homeless! Realtors get asked this question on a regular basis and as we explore this topic in more detail, it’s really not a matter of how the market is presently overall, but how YOU fit into the particular market as you look for a new home and search your local mls real estate listings.
Let’s consider some of the pros and cons of both situations.
If you choose to buy before you sell then there are just as many challenges to face. Let’s say you’ve finally found that perfect home and it’s time to make an offer. If you can’t get approved for a mortgage without selling your current home you are going to have to include a “conditional upon sale of your home” clause in the offer. This puts you in a tight spot for a couple of reasons. First off, it gives you less negotiating power as the seller won’t view the offer as an equal to offers without this condition. If the market is currently fast paced, they won’t be inclined to accept your offer since the seller will expect to get a reasonable offer from someone else without that condition. If they do accept the offer, it will most likely be at a higher price than if you were to bring in an unconditional offer. Furthermore, a seller will include a condition allowing them to keep the property up for sale and accept other offers. If another offer comes in you usually have 24-48 hours to decide whether you want to waive your conditional sale clause. This brings you back to the same question, Can I afford two mortgages? If you can’t, then you lose the home to another buyer and you back to square one.
It’s definitely a frustrating situation and really out of your control once that process has begun. If this was the only property currently on the market that you like, you now have to answer the following question: Do you take your current home off the market and wait for a new property of interest to come up on the market? This back and forth process is irritating and not only does it get tiresome, but qualified buyers start to wonder why your property has come on and off the market so many times. If they don’t receive the right information from their Realtor, then they may see your property as a problem. Who would buy a property that they may see as a problem to sell in the future?
When you go to list your current home after finding a new one your sale price is likely going to be affected by how quickly you need to sell your home. If you don’t price your home aggressively then you run the risk of not selling fast enough and losing the new home to another buyer. Are you willing to give up that $5,000, $10,000 or even more to get the house of your dreams? Alternatively, if a low-ball offer comes in, you may feel pressured to accept the offer so that you can get the home you really want. These are all important decisions you must answer.
If you’ve chosen to sell first then you have a good idea of exactly what you can afford to buy. You no longer have to think “Well if my house sells for this amount, then I can afford this price range”. It essentially takes the guessing out of the game. Another powerful tool now in your belt is negotiating power. Since you have sold your home, you are not constrained to having a “conditional upon sale of your home” clause therefore giving you a great advantage over other buyers who have chosen the “buy first” approach. You have the power to make unconditional offers on any property that interests you, which gives you the upper hand in price negotiation as most sellers favour this situation.
On the other hand, if you don’t find a property that you like, you are in a position of having to find a temporary home while you continue your search. These are questions you must ask yourself when considering which approach is the most viable for you. You may choose to purchase a home that is close but not exact to your expectations, is this an acceptable situation? Another question you must answer.
Selling first typically does give you the power to sell at your maximum price and purchase at a lower price since you have the negotiating power of an unconditional offer or at least one without the conditional sale clause. It’s a financial win-win scenario.
Lets recap with some important questions to ask yourself as these will help determine whether you Buy First or Sell First…
You may want to Buy First if you answer Yes to the following questions?
You may want to Sell First if you answer Yes to the following questions?
Are you interested in achieving maximum negotiating power?
Is it currently a Sellers’ market? – typically involves unconditional and multiple offer situations, if you still have to sell your home, your offer likely won’t get considered
Do I want to know exactly how much I can afford before looking for a house?
Are there a enough properties currently on the market that I am interested in? – The more choices available means you likely won’t be homeless if you don’t find a new home in time
Can I live with another family member if I haven’t found a house that I want to buy? or Am I willing to move into temporary housing while I search?
Make sure you do your homework and have a good idea of what type of home you are looking for and in your desired area. Talk to a Realtor to get the most recent market data so that you can make an informed decision.
For anyone living in the London, Ontario area feel free to give me a call or email me with any questions and let’s work together to help answer this tough question.
As always, I appreciate any comments you may have, please post below.
Sutton Group – Select Realty Inc.
A blog helping people understand more about Real Estate in London, Ontario and Canada