Real Estate: Buy or Sell First

If you are a home owner, and considering looking for a new house, chances are you’re wondering what your strategy should be: do I buy or sell first? The following are a few pointers to explore what might be the best move for you.

Sell First:

You know what you can spend

There are several benefits to selling your current house before searching for your next home. First of all, once you have sold your house, you know precisely how much money you can spend on the new home. With a concrete budget, you can narrow the pool of houses before you begin looking and negotiating accordingly.

Knowing what you can spend also allows you to make a firm offer on a new home. An offer without a financing condition usually makes the offer more attractive to a seller, and potentially gives the buyer more negotiation power. And if you do not get what you want during negotiating the one home, you can easily move on to the next.

You need a plan B

If you can’t find what you are looking for, you will have to find alternative accommodation. We always ask our sellers if they have a plan B. This plan comes into effect when the house is sold, and you can’t find a new home. A plan can be temporarily moving in with family, a short term rental, an Air B&B etc. If the home search takes too long, not having a plan B can only cause stress. And stress is, in our firm opinion, never good when buying a home. When under pressure, you may make the wrong decisions.

Buy First:

You can take your time in finding the perfect home

Most buyers who move homes prefer to find the perfect home first. So, buying first gives you that opportunity to take all the time you need.

Danger of two mortgages

Buying a home before selling gives you all the time you need. But if the home doesn’t sell as quickly as anticipated, you face carrying two mortgages.

Your home may sell for less

Then, there is the danger that your home sells for less than expected. The Calgary real estate market can be volatile, and market conditions can change quickly. Another danger is when more homes get listed in your community and the competition grows. A market evaluation of your home is specifically for today’s market, not for the future. Eventually, you risk going into debt further than you’d like.

Either way, when you buy before you sell, make sure you are familiar with all the aspects of the financials. Talk to your lender!

Conditional Offer:

The ‘sale of buyer’s home’ clause

Another option is to purchase a home under the condition that you sell your home first before you buy another home. This gives the buyer the option to take time for home shopping, before selling. However, this condition has its pitfalls. The fewer the conditions, the more attractive an offer is for a seller. And, often, sellers are not very keen to take on this condition.

If a seller does accept this condition, there are a few important rules to be aware of as a buyer.

• The rule is that a seller is allowed to keep the home active on the MLS and stay open for other offers. This means that another buyer can come along and negotiate an offer.
• If another buyer does come along, and a second offer is negotiated, another rule comes into place. The contract states that the first buyer gets 1 or 2 days to waive all conditions. It now says 1 or 2 days, but in reality, it is anywhere between 12 and 72 hours, whatever the seller and buyer agreed upon.
• In short, the above means that any other buyer can bump you out. For most buyers, it will be too much risk to waive the conditions such as financing and home inspection when their own home is not yet sold.

Timing is key

This ‘sale of buyer’s home’ condition comes with many different scenarios. It all depends on timing, when the second offer comes in. For example, the buyer’s home may already be conditionally sold. Now the seller may have more confidence that the first buyer will meet that condition. But it also depends on the offer from this second buyer. This second offer may be better than the first.

You can’t get out of it

Seller and buyer must agree  to how long the buyer gets the opportunity to sell his/her home. Some sellers give a buyer 2 weeks, some give 2 months. During this time, the buyer cannot get out of the contract. This means that if a better deal comes along, you will have to wait.

The ‘sale of buyer’s home’ clause is further explained in the article about sale of buyer’s home condition.

Buy or sell first boils down to financial ability and comfort level

The decision to buy or sell first really depends on many factors. We think the most important ones are the comfort level of the person, as well as the financial ability. We can’t advise on the comfort level of someone, but we can advise you to talk to the lender about all options and risks.

Secondly, it also depends on the type of real estate market that Calgary is in. Is it a buyer’s market or seller’s market? Most sellers won’t accept a ‘sale of buyer’s home’ clause if it is a seller’s market. Most buyers will be anxious to find the right home if it is seller’s market. In either market, a buyer may gain more negotiation power with an offer that doesn’t have a financing (or any other) condition. But this power increases in a buyer’s market. So, also researching the current market conditions may help in making the decision of whether to buy or sell first.