Which should come first: Selling your home or buying a new one?
Last updated on June 21, 2022
When planning to move, owners often wonder if it’s better to sell their current home before looking for a new one, or vice versa. Unfortunately, there’s no one-size-fits-all answer.
It’s tricky because both options involve some risk. Therefore, every owner must decide which of the alternatives they’re most comfortable with. Either way, there are several factors involved in ensuring a smooth process: the state of the real estate market, how much financial wiggle room you have and the possession date. Here are some tips to make your decision easier.
- 1. Monitor the state of the real estate market
- 2. Analyze your financial room to manoeuvre
- 3. Negotiate the possession date
- Checklist of things to keep in mind
- The best option for you
You should not only consider the overall market conditions but also take a closer look at what’s going on in your area. Are selling times fast or slow? What type of property is most in demand and getting the best price? How much are homes selling for? Is your piece of real estate appealing? Is it a buyers’ or a sellers’ market? Each one of these questions is relevant.
When the market swings toward the buyers’ side, you have more room to manoeuvre. It’s then in your best interest to make your offer to purchase conditional on the sale of your home, so you don’t end up with two properties or two mortgages on your hands.
When the market favours sellers, this type of conditional offer could hurt your chances, because you might be competing with buyers whose offers don’t have conditions. In that case, opting to purchase a new home before you sell would improve your chances of getting your ideal home.
Purchase offers conditional upon selling
“Homeowners who submit a purchase offer conditional on the sale of their home must fulfill that condition within the predetermined time frame,” explained Martin Desfossés, real estate coach at DuProprio. “When selling times are long, there is a greater risk of not finding a buyer in time. That’s less of a problem in a market where your type of property is selling quickly.”
To avoid losing out on a property you’ve fallen in love with, you could agree with the seller to extend your deadline for selling. But otherwise, the accepted offer to purchase becomes null and void. You could also opt to submit an unconditional offer, but you would have to demonstrate your buying capacity, for instance by providing proof of the funds being available or by showing a mortgage preapproval from a financial institution.
To make the best decision, learn more about the ins and outs of the 72-hour clause, as it relates to offers to purchase that are conditional on the sale of the buyer’s property.
In short, your decision to sell first or to buy may change depending on the market and your current property’s potential appeal.
The answer to your question must also be based on your financial situation. There is more risk involved in buying before you sell, but if your situation is solid enough, there’s nothing to keep you from jumping in. On the other hand, selling your home before finding your future nest can lead to some significant expenses, like renting an apartment or storing your things while you look for a new property.
Take time to really work out your budget, determine exactly how much your current home is worth and find out what your financing options are.
Set a budget
First, you need to know how much you have to buy your new real estate. Do you already have enough liquidity to make a good down payment on your future home? If not, then selling beforehand will let you know precisely how much you have available to finance the new house.
Otherwise, you have to estimate your property’s equity: its market value less the balance remaining on your mortgage. That will make it easier to search for a new home that fits your financial capacity, even before you sell the old one.
It may seem more tempting—and safer—to start by selling. But keep in mind that the transition period between homes can add to the final bill. It would be wise to set aside some funds to absorb those potential costs.
How to determine your property’s market value
The key to a successful transaction is to sell at a fair and competitive price. Take steps to assess your property’s market value as precisely as possible. You can also get a detailed report from a chartered appraiser, which is the only type of impartial real estate appraisal professional in Quebec. With DuProprio you also get the tools you need to determine your home’s value with confidence.
The data you receive will let you know if your property is worth as much as you think. If your home is harder to sell because it needs major work or is located in a less popular area, it’s better to take your time, and to sell before buying your new home.
But if your type of property is very sought-after and it seems like buyers will line up at your door, then you’re in a good position to buy your new home first, without worrying about not being able to sell your current place. Check out our 3 profitable tips to sell your property.
Getting temporary financing
If you don’t have the liquidity for the down payment on your future residence, you will surely think about making a conditional offer to purchase or selling your home before buying the next one. But, to make sure your dream home doesn’t slip between your fingers, you should also look to your financial institution for potential solutions.
You may be eligible for bridge financing. If so, you will get temporary funding for your new down payment, using the equity of your current home as collateral. This type of loan must be repaid once the sale of your property is concluded, within a very short time frame. Also, the interest rate on these loans is generally higher than regular mortgage rates.
It’s best to talk to your bank directly to find out what options are available in your situation.
The ideal scenario is when you leave your current house and move directly into your new one. But that’s not always possible. Negotiations between the buyer and seller to change the possession date can make the transition simpler and accommodate everyone.
If you sell first, and several months go by before you get the keys to your new home, you have to find temporary housing (e.g., short- or long-term rental, staying with friends or family). You also have to forward your mail and put your furniture in storage. You should also keep in mind your children’s adaptability, having to change schools or daycares, plus any additional travel needed.
This transition period can be stressful. So, naturally, your strategy will depend on your personal, professional, and family situation.
Selling before buying
- This is the safest option financially, because you recover the full value of your current residence and know how much can be allocated to your next purchase.
- You are sure to be paying only one mortgage at a time.
- You have more time to find the right buyer for your home.
- When you make the offer on your future property, you won’t have to make it conditional on a sale, which is more appealing to most sellers.
- It’s easier to get a new mortgage than to get a second real estate loan.
- You might need temporary housing if you don’t find a home quickly.
Buying before selling
- The main advantage is being able to take your time to find that “perfect” place that ticks all your boxes.
- You can add “immediate occupancy” to your listing when you’re selling.
- You have more time to renovate or decorate your new home before moving.
- You only have to move once.
- Selling your own residence might take longer than planned, which increases the risk of having to manage two properties at once.
So, what’s the best option for you: selling or buying first? Clearly, that depends on you. Several factors can change the game, including real estate trends and your personal situation. The advantage is that, as a homeowner, you’ve already gone through the buying process, from searching for a house to talking to the bank and notary. You already know what to expect.
Are you considering selling your home yourself and saving the commission? To benefit from the advice of our experts, call on the DuProprio team. Schedule a free consultation.