There is no correct answer to whether you should sell or buy first. For the most part, it's your personal preference. Knowing the benefits and risks of each scenario can help you decide what is right for you.
Regardless of the route you take, moving from one house to another can be stressful. Your personality, your ability to cope with stress, your attitude and your general risk tolerance are important things to consider. Either option will present unique challenges that come with different risks.
If you have to make this decision with a partner, you may not agree. Be sure to talk this over thoroughly, and decide as a team. Communicating your feelings is very important because this is just the first step in a series of big decisions. You're not alone. An experienced REALTOR® can help you gain the confidence to make this choice through in-depth conversations.
Buying a Home, THEN Listing Yours...
The Benefits of Buying First
↳ If you haven't sold yet, time is on your side, so looking at homes could feel more relaxed.
↳ With time on your side, you can wait a bit longer for the right home to come up.
↳ The more homes you see, the more you'll learn what you like, what you need, and what you don't like.
↳ You'll have more time to see different neighbourhoods. You'll learn the areas you like and the ones you don't. If you've already sold and need to buy, you could risk buying in an unfamiliar area out of necessity.
↳ If you don't feel pressured to buy, there's a lower chance you could overpay for a home.
↳ If you write an offer on a home, but are unsuccessful, you could be disappointed, but another home will come up.
The Risks of Buying Before you Sell
↳ As soon as your offer is accepted, the clock starts ticking. You need to sell your house.
You'll have until roughly the completion date you just picked (45/60/90 days?) to not just sell your home, but also close. This means your buyers need to take possession of your house around the same time you plan on being in your new house.
Each day that passes before your house is on the market and sold is one less day for a buyer to see it, write an offer, negotiate a deal, clear conditions, and move into to yours. Selling your home could take longer than you expected, and the excitement from your new home purchase could shift to anxiousness until your house is sold.
↳ Buying first can take some pressure off, but taking too long to pull the trigger on a home could backfire. In a hot market, home values can increase quickly, but your budget doesn't.
If you have been ready to buy, but searching for a very long time, you could notice your REALTOR® sending you fewer listings. The cause might not be a slowing market. It could be that what you want in a home is no longer in your budget. You may need to adjust your search to a different home type (now a duplex instead of a detached home), or give up something important, like a garage, a private yard, or mountain views.
↳ After you buy, the real estate market could change without notice. There are no guarantees with anything in real estate. A major historical event, surprise government intervention, war, pandemic, etc., could cause a major market shift, and force you to significantly reduce your list price to avoid not selling. You can do your best to prepare, but things can change at any time, and quickly. Expert guidance is key.
It's important to note that the reverse is also true. If you sell first, but something causes a buying frenzy, home prices can increase substantially. You could now be forced to buy for more than you had expected. It's important to try your best to buy and sell as close together as possible to reduce the risk of getting caught in between a changing market.
↳ To be approved for a mortgage on your purchase, the bank would likely need you to sell for a certain price. If you have trouble selling, or sell for far less than what the bank expected, you could be in trouble. The bank may not offer the same amount they approved you for, and you may need to come up with alternative financing, or risk not be able to complete your purchase.
If you can't complete your purchase, you could forfeit your deposit or be sued by the Seller of the home you bought. Worse yet, if that same Seller also bought a home and needed your money to afford their purchase, now they can't complete their purchase either. They could then lose their deposit and also be sued. This trend could continue, and several more homes could be affected. This is now chain reaction of lawsuits, and the damages will ALL fall on the first person who didn't complete their purchase.
Selling Your Home, THEN Buying...
The Benefits of Selling Before you Buy
↳ You’ll know exactly what you can afford.
↳ You won't need to worry about your home not selling, or having to reduce your price if it doesn't sell quickly enough.
**The risk of not closing on your next purchase is never eliminated, but selling first greatly reduces this risk. If the market changes, or the people who buy your house decide not to complete the purchase, your buyer would be at fault in a chain reaction lawsuit, not you.**
The Risks of Selling Before You Buy
↳ As soon as your house is sold, the clock starts ticking to find a home, and purchase it. Once your home is sold, you could feel stressed that you won't have a place to go.
↳ In a market with low inventory, you could decide to settle for a less desirable home than you want.
↳ You could potentially overpay for a home to make sure you win if you are in competing offers.
↳ If you are in a hot, Sellers market with low inventory, home values could increase quickly after your home is sold. You may have sold for what you thought was more than enough to buy your next home, but the home could be more expensive than you expected.
Minimizing Your Risks
Prepare Your House NOW. Before You Buy
Early in your home search, your REALTOR® should be going over things with you to prepare for selling yours. Do you need to paint? Do you have a Real Property Report? Is your home ready for pictures? Try to get these done while you're looking at homes, so that when you buy, your home is ready to list within a day or 2.
Are there any simple things you could do to add more value? Sometimes it's not a matter of upgrades, but making the home more saleable. If there is something specific that could turn buyers off, take care of it as soon as possible.
Know The Market You're In, And Be Ready To Adapt When Necessary
Make sure you know if you're in a Buyer's Market, Seller's Market or a Balanced Market. This will help you decide if it makes more sense to buy or sell first.
As mentioned previously, the market is ever-changing. You need to be prepared to pivot when necessary to keep up with any changes to the market. Work closely with an experienced, local REALTOR®. Ultimately, you make every single decision in a transaction, but expert guidance is invaluable.
Have a Contingency Plan
Regardless of which route you choose, have a back-up plan in place in case you are left with two homes, or no home, for a period of time.
If you sell before you buy, consider a short-term rental, or staying with family or friends. This would be a better option than settling for a less-than-ideal home or overpaying. BUT, remember to watch the market closely and not get too picky. If prices are rising, the quality of the homes in your price range could diminish the longer it takes to buy.
If you buy before you sell, make sure not to overextend yourself with the purchase price. If you buy at the very top of your budget, and your pre-approved amount is based on your home selling at an overly optimistic amount, you could run into trouble closing your purchase if you sell for a lower price. This is an extremely stressful situation.
Understand Conditions
Lean on your REALTOR® for advice. The success of conditions being accepted depends on the market, the leverage each side has (ie. brand new, hot listing vs. something that has been on for months), and the individual parties to the sale. All conditions can be waived or extended at any time.
Buyer's Conditions
Financing
A financing condition would need to be waived within a week or two of your offer being accepted. The commitment letter from your lender is almost certainly based on the money you'd get from selling your home. If you don't sell, or sell for far less than the lender expected, you might not be able to complete your purchase.
Sale of Buyer's Property (SOBP)
This is a tricky one to get accepted in a hot, Seller's Market. For a seller to accept this condition, your home needs to be ready to list for sale within days. The condition includes a specified time for your home to sell. If you sell within that time frame, you waive the condition, and your purchase is now firm.
If you're unable to sell your home within that time, you have the option of walking away from your purchase and your deposit is returned in full. You could also try to negotiate an extension, or waive it regardless.
One thing to note is that there is typically a 24-72 hour "Time Clause" on this. This means that the purchase is technically sold conditionally to you, but the home is still for sale. If another buyer likes it, they can submit an offer on it. If the seller wants to accept that offer, the SOBP condition will give you the right of first refusal. You then need to either waive all conditions, including the SOBP, to get the home, or that new Buyer will bump you out. If you don't waive, you would lose out on the home, but your deposit would be returned in full.
Seller's Conditions
Seller Finding a Home
Not many people know this, but sellers can have conditions, too. If you list your home for sale before you buy, you can ask that offers to include a condition on you finding a home. Like the SOBP, there needs to be a specified time period. If you purchase within that time, you waive your condition and your home sale is now firm.
If you are not able to find a home on time, the condition is not fulfilled and the contract for your home sale is voided. You are not obligated to sell your home. Your home will go back on the market while you continue to look for a suitable home.
Ultimately, It's Completely Up To You...
Is it better for you to buy the house first, then list? Or do you wait until your home is sold, then buy? Either way, the first step towards your goal is to make this decision. Either route could invoke uncomfortable emotions, but knowing the benefits and risks of each, and understanding the current real estate market should help you decide what is best for you. If you're making this decision with a partner, be sure to talk this through and decide as a team.
Help is available if you need advice or guidance. A trusted REALTOR®, who is not only experienced, but patient, is an invaluable resource to lean on. If you're stuck on step 1, and not sure if you should sell or buy first, let's talk. Upsizing or downsizing is most often the largest financial decision people will make in their lives. I'm here to help simplify this process for you, and make your move as seamless and stress-free as possible.
I live in Cochrane, Alberta and love helping clients buy and sell their homes in Cochrane, Calgary, Airdrie, Chestermere and anywhere in Rocky View County. When you're ready, let's connect!
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