Buying or Selling:Which Comes First?

By: Dana Gain

Buying or Selling:
Which Comes First?

Tags: buy home, sell home, closing date, timing of home sale, timing of home buying

If you have ever considered this question, you know that the answer is far from straightforward.

There are simply too many potential eventualities to consider when contemplating whether to buy your new home or sell your current home first.

Much of what's involved will focus on timing and your tolerance for risk.

Since there is no ideal sequence of events, one approach is to make peace with the implications of each possible decision. Let's review the pros and cons of buying versus selling first.

Buying Your Dream Home First

In this scenario, you may decide to go on the search for your dream home while holding off from listing your existing property. This approach allows you the time and the freedom to see what's in the market without rushing.

The process could take you a few days or several weeks, depending on what is currently for sale and how well each home aligns with your wish list. No rush, no pressure.

You could also explore new construction options. Perhaps you would like to investigate model homes in the area. This option is particularly exciting because with a home not yet built, you could choose all your colours and finishes. Customize the kitchen. Select all your favourite colours, and put in a granite countertop in the guest bathroom like you always wanted.

With this approach, time is on your side. Here you can go into the offer process with leverage, since your closing date is not yet decided. You might use this flexibility to your advantage and offer up a more attractive closing date to the seller in exchange for a lower price.

On the other hand, if you decide on a newly constructed home, you will be dealing with home builders where you may have reduced leverage. Often the prices are firm and the only area of negotiation is in how much the builder is prepared to concede in upgrades.

Also, your closing date may be up to 2-3 years down the road, which for most people is a long time to wait.

On the upside, this allows plenty of time to sell your existing property, even enhancing it with upgrades if you choose, in the hopes of lifting your sale price.

Assuming you opt to purchase a resale home, you may now have less time to sell your current home. Committing to a new home before selling your current property can result in some added anxiety. You may feel pressured to sell your existing dwelling quickly because you're locked into the new purchase, resulting in perhaps accepting a lower price than you might have otherwise accepted.

To ensure you have a place to live, on completion, you will also need to align the closing date of the purchase and the sale. This may mean reduced leverage in negotiations with a buyer.

To avoid this scenario and maintain some of your leverage, you may opt to move forward with a bridge loan. As the name implies, this type of financing can effectively bridge the gap between mismatched closing dates.

Before you accept an offer that puts you in this position, be sure to speak with your mortgage broker or lender to confirm you are approved for a bridge loan.

The riskiest eventuality in buying first is that you are unable to sell your current home in time. Could you afford to pay two mortgages if it came down to it?

Consider also that if your existing property does not sell in time, you will still have to find the resources to support the down payment and other expenses associated with the new property.

Worse, if you're unable to produce the down payment and cannot close on the new home, there may be legal ramifications to consider.

To protect yourself from this outcome, consider adding a condition to the purchase of the new home making the deal contingent on the sale of your current property.

This way, if you are not able to successfully sell your present dwelling, you can opt out of the purchase and walk away. It's not an ideal scenario, but it does offer some protection and peace of mind should things not go as planned.

Selling Your Current Home First

In this scenario, perhaps you have decided that you prefer to have all the leverage possible in selling your home. If you don't have a newly purchased home waiting for you yet, there is no pressure to accept less than what the market suggests your home is worth. You can take your time and even add home improvements before selling so you can maximize your listing price.

You won't yet have a closing date you need to adhere to, which means you may have more leverage than a potential buyer who could be already locked into another deal.

Importantly, in selling first you will know how much money you have to work with when you purchase the new property. This will allow you to budget carefully and may reduce some anxiety.

You may take whatever time you need to assess any potential offers and negotiate what's most important to you. All this without the pressure of knowing that losing a buyer could have far-reaching implications had you already purchased another property.

However, there are a few important factors to consider before deciding whether to sell first.

First, you may feel pressure to purchase another home once the existing house is sold. After all, you need a place to live. Knowing this, you may be prone to choosing another property before you're ready. Or you may end up paying more than you would prefer.

You will also need to align the closing dates of the sale and the purchase. This may mean paying slightly more than you would like for another property because you may not be in a position to negotiate the closing date with the sellers.

The date of completion is not always part of a negotiation, but it's important to recognize in advance if you might be giving up an area of potential leverage.

Consider also the eventuality that you simply have not found the right home to buy but you've already sold your present dwelling. Consider how you might manage this. Will you rent for a short period of time, or stay with family or friends?

In the current seller's market, your house could sell quickly. It's a problem most people would like to have. If that happens, make sure you allow yourself sufficient time when agreeing on a closing date to do your own house hunting. Otherwise, you may need to make some very fast decisions about where you are going to live next. 

Finding a REALTOR® you trust will do much to ease your peace of mind through this process.  Real estate representatives have successfully negotiated this terrain throughout their careers, and can help you see around corners and protect your interests.

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