If you are a current homeowner looking to make a move, in addition to selecting the best REALTOR® available, your next biggest decision will be whether to sell first and then buy or buy first and then sell.
Supposing you decide to sell first before buying – what are the risks, ramifications, and benefits? Below are some important considerations:
(a). BENEFIT – You would not buy until you know how much your current home has sold for.
(b). BENEFIT – You would have the security of knowing your home has been sold (i.e. not worrying that your home may never sell close to what price you might be expecting) and as a result you can afford to be more patient to not give your home away too quick and too cheap.
(c). BENEFIT – Except in the cases of multiple offers or unmotivated Sellers, it is the Sellers who are generally easier to push around on an offer negotiation for smaller matters like possession date. Therefore by selling first you have a better chance of controlling your own destiny of having the possession date on your purchase that coincides with your current home sale.
(d). BENEFIT – It is much easier to get interim financing and general financing from a bank once you have written proof that a Buyer has removed all conditions for your current home.
(e). BENEFIT – You will feel more confident writing an offer on the best home available.
(f). BENEFIT – You will be able to make a stronger offer that will increase your negotiating leverage with Sellers (e.g. making offers subject to financing and / or inspection only).
(g). DRAWBACK – Once you sell your home the pressure is on to buy during the days leading up to the turnover of your current home to the new Buyer. To circumvent the risks of not having anywhere to move upon completion day, you should consider invoking the following strategy: (1). Speak with your REALTOR® about receiving listings in advance of signing an offer to purchase on your current home that closely match your requirements so that way you have a pretty good idea of the current market; (2). List your home and consider acceptance of an offer with a 90-day (or more) possession to give you at least 70 or 75 days to make the move once conditions are removed; and (3). Once your home is SOLD, be eager (i.e. call your REALTOR® every day or at least a few times a week) to schedule regular viewing appointments to buy a home.
(h). DRAWBACK / BENEFIT – If the market suddenly goes up (can be sudden in some rare cases) you may have to suddenly spend more than you expect to buy a home and conversely if the market suddenly drops you may have the luxury of spending less to buy the home you want.
Next, suppose you decide instead to buy first before selling – what are the risks, ramifications, and benefits? Below are some important considerations:
(a). BENEFIT – You would not be in the position of trying to sell your current home until you have found that perfect home to buy which can take a lot of time (for some people this period can be months or years) depending upon how unique of a home you are looking to buy.
(b). DRAWBACK – Once you buy, there is pressure to sell and you may end up giving your current home away quicker and for less money than had you decided to sell first.
(c). DRAWBACK – Because Sellers are generally easier to push around on an offer negotiation for possession date, by buying first you have a much greater chance of not controlling your own destiny which can mean either being forced to move out earlier than you expect or more likely having to retain your property for a few weeks or months longer than you would expect. Therefore part (ii) of this drawback means, while waiting for your current home to sell, having to allow possibly for several months of extra property taxes, landscape and snow removal, property insurance, mortgage payments, condo fees (if applicable), property manager to check on your vacant property, and utilities including power, heat, water / sewer, etc.
(d). DRAWBACK – It is much tougher and more expensive to get interim financing and general financing from a bank when you own the liability of an unsold home.
(e). DRAWBACK – You will not feel as confident writing an offer on the best home available because in the back of your mind you will be allowing some risk buffer for your unknown sale.
(f). DRAWBACK – Unless you will be paying cash when buying your new home, your offer will likely be weaker and would depend on a high-risk financing acceptance and / or making an offer subject to the sale of your home. Both of these types of offers are very weak and considerably reduce or eliminate any negotiating leverage you might otherwise have with Sellers.
(g). DRAWBACK / BENEFIT – If the market suddenly goes up you may be afforded the luxury to sell your current home for higher than you originally expected and conversely if the market suddenly drops you may be forced to list and sell your current home at a much lower price.
In summary, most people who are both selling and buying decide to sell first before buying since the risks, ramifications, and benefits on balance tend to outweigh the decision of buying first. Clients who are afforded the luxury to buy first before selling will generally satisfy all the following criteria: (a). Own outright clear title on their current home; (b). Have strong income and assets with limited liabilities; and (c). Can afford to take a hit (loss) of tens of thousands of dollars or more if the market suddenly drops before their home is sold. [Note that people who are only buying (e.g. first time homeowners; municipal expropriation; or investors entering the market) or who are only selling (e.g. moving to a rental situation; bank foreclosures / court-ordered sales; or investors leaving the market) are not faced with the same decision dilemma].
[Article written and ©2009 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at Maxwell Devonshire Realty in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.