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.
You know what you can spend
Selling first gives you a more exact budget
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
When under pressure, you may make the wrong decisions
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.
Always talk to you lender when buying before selling!
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!
The ‘sale of buyer’s home’ clause
A seller can ‘bump out’ a buyer with the sale of buyer’s home clause
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
It also depends on the type of real estate market that Calgary is in
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.
Read more about the Sale of buyer’s home condition and 7 tips to pricing your home right.