You own a house now, but you want to move to a bigger place or a different neighborhood. Should you sell your current home before you buy your next, or should you buy first, then sell your existing one? Though this is a very common question, there is no “right” answer. The answer depends on a number of things.
Buying a Home First
Human nature being what it is, once the decision to move is made, people usually put a great deal of effort into finding that perfect home – sometimes without giving much thought to selling their current one. If, for a fleeting moment, they do consider whether to sell first, they figure they won’t have trouble finding someone eager to buy their charming home, so they once again focus on buying. Then, once their offer on a house has been accepted, their attention shifts to selling their current home. At this point, however, they may begin feeling that the clock is ticking because usually they need to sell before they can remove the First Refusal Conditions (a condition allowing for the Buyer to sell their home first) in their Agreement of Purchase and Sale. During this conditional time period, the home they so dearly love is still being offered for sale and if another buyer comes along they may lose their option on their dream home, unless of course they are able to afford two homes at the same time. Fearing that time is running out may sometimes become overwhelming.
Selling Your Home First
Advantage: Selling your existing home before buying another has its advantages. By selling first you know how much money you’ll be getting on closing, which helps you establish a price range for the new home. Also, if you’ve already sold you don’t have to make your offer conditional on selling your existing home.
Disadvantage:The down-side is that you may not be able to find a satisfactory replacement before the closing on your current home, which means you may need to find someplace to live temporarily. Or, you may be tempted to settle for something that isn’t quite what you want.
RISKY BUSINESS / SELLERS MARKET: Aside from your own personality and what risks you’re comfortable with, when facing the dilemma of buying-first/selling-first, don’t forget to take market conditions into consideration. Generally speaking, it makes more sense to buy first in a seller’s market (that is, when prices are rising). The rationale is that if prices are going up, it is preferable to lock in the price of the home you want to buy, meanwhile allowing you to subsequently sell your home at a higher price (assuming the seller’s market continues).
PLAYING IT SAFE / BUYERS MARKET: During a buyer’s market (when prices are falling, generally it makes sense to sell first. That way, you lock in the amount you’ll receive for your current home before the market falls further, and you’re able to take advantage of further falling prices when you subsequently buy. Of course, knowing whether it’s a buyer’s market or a seller’s market isn’t always straightforward and, because it depends on a number of factors, the market can change quite quickly. Your TEAM AGENT can help determine what the market conditions are in your area and in the area in which you are looking to buy.
CONDITION ON “SELLING HOME FIRST” OFFERS
One way of hedging your bet is to make your offer to buy, conditional on selling your current home. With a “conditional-on-sale” offer, the offer becomes firm and binding only if you sign an offer to sell your current home within a specified period of time, usually 30-60 days.
When making any kind of conditional offer be sure the offer clearly states the condition that is to be satisfied and how long the buyer has to satisfy the condition. The offer should be phrased in such a way that some positive action must take place for the deal to remain alive. For example, the offer might state that it’s conditional on the buyer signing an offer to sell his/her current home within 45 days, otherwise the offer becomes null and void and the deposit is to be returned to the buyer.
The likelihood of a condition on “SELLING HOME FIRST” offer being accepted depends on a number of factors, including the seller’s personality (for example, whether the seller is cautious and would rather have a conditional offer than no offer) and market conditions. Seller’s are less likely to accept a conditional offer of this nature in a seller’s market because there are generally more buyers than sellers, so they believe another potential buyer is likely to come along pretty quickly. In a buyer’s market there are likely to be more houses listed than interested buyers, so sellers may be more inclined to accept a condition on Selling Home First” offer, because they might be anxious to receive any offer.
Sellers reluctant to accept a condition on “Selling Home First” offer can protect themselves by accepting a conditional offer subject to a condition that allows them to continue listing the house for sale during the conditional period but that requires them to give the person who made the original conditional offer the opportunity to waive the condition if the seller receives another offer. (If the original offer or then decides to waive the condition, the original offer becomes firm and binding.) This is an especially attractive way of structuring the deal if a buyer has asked for a relatively long conditional period.
A word of caution though, the second offer the seller receives may be higher than the first offer. If the First Buyer elects to waive their condition, (remember they have the First Right of Refusal,) the sellers property will be selling for a lessor amount than offered on the second offer.
YOUR COMFORT LEVEL
The bottom line is that whether you buy first or sell first is a personal decision. There are a number of factors that might influence your decision, but there is no right or wrong decision. And, you can always hedge your bet by making the offer with a condition providing for “Selling Your Home First”. If you decide to make such an offer, consider getting legal advice to ensure it’s phrased properly. As well, if someone makes a conditional offer to buy your home, it’s a good idea to legal advice so that you understand what you’re getting into and how you might best protect your interests.
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