SHOULD YOU BUY OR SELL FIRST?
Like the saying “What comes first: the chicken or the egg?”. There is no generally correct answer to the classic real estate problem of whether it is better to buy first or sell first.
Moving from one house to another involves the financial risk of carrying two properties simultaneously or ending up having to find temporary accommodation and having to move twice. Here are some of the advantages and disadvantages of both alternatives for you to ponder. Of course, your decision in this regard will be affected by your risk quotient, financial resources and current market activity levels.
IF YOU BUY FIRST:
1) You will have the satisfaction and security of knowing where you are moving to next, thus reducing stress.
2) The smart thing to do is to include a clause in an offer on a next home stipulating that the purchase is subject to the sale of your current house/property by a certain date (such as say 60 days) and find out if the seller would agree to that. Of course, this condition is harder to achieve in a strong market where properties sell relatively fast and sellers do not want to wait to see if yours will sell. Certainly that is the case for most Calgary city homes right now, but still possible on some larger properties and acreages that can have smaller buyer pools due to their high price ranges.
3) If you need new financing, there will have to be an appropriate condition to that effect. And of course many offers have a home inspection condition, and for country properties other conditions such as water, septic and due diligence clauses.
4) Because of these “subject to” clauses, you will have reduced bargaining power (in comparison with a subject-free cash offer with no Sale of Owner’s Home condition) i.e. the seller will be less inclined to negotiate on your offer and his/her asking price.
5) Then there is the uncertainty of whether your property will sell during the limited time period. This may be particularly the case if you are selling an expensive acreage as they can take a long time, especially if somewhat overpriced to market. To avoid tying up a client’s house needlessly, a listing realtor will most often insist on inserting an escape clause that allows the seller to continue to market the property while they wait for yours to sell, and should they receive another acceptable offer in the meantime, they will give you 24 or 48 hours notice to remove all your “subject to” clauses and make your purchase offer firm and binding, in other words you will have a “first right of refusal” to the property you have offered on. Failure to firm up your offer and remove all conditions even though yours is still not sold will render the contract null and void and the seller will be free to accept the other offer.
6) The lending institution that will grant the new mortgage for you may not give a firm commitment until your property is sold. Besides the uncertainty of how much new financing you will need, the problem may be your inability to carry two properties.
7) Next, you will find yourself under pressure to sell within a limited amount of timeframe and in many cases your existing property will need to go to market quickly. Of course, if you have the luxury of a strong financial position you may be able to buy without having to sell quickly to close on the other deal, however, many sellers do not have that situation.
8) Selling in a ‘seller’s market’ compounds additional problems. Over optimistic or unrealistic sellers may tend to overestimate their home’s marketable value and underestimate the length of time that is required to sell their property.
9) You will not have the luxury of being able to hold out for a more ideal price. In fact, you may be forced to progressively reduce your list price in order to attract an offer. On the other hand, if priced well and in an attractive price bracket you may get quick results.
10) To add insult to injury you may be served (during the 60 days you have to sell) with the 24-hour escape clause before your existing property is sold. For many people, it is too risky to borrow bridge financing and to carry two properties. In that case, you have no choice but to step aside and lose out on the other home of choice.
In summary, if you buy first, chances are that you will buy high (less bargaining power as yours is not sold) and sell lower (due to time pressure) and you may lose out anyway on the house of choice you have offered on.
IF YOU SELL FIRST:
1) The preliminaries of putting the property on the market can be taken care of without wasting precious time.
2) While your property is for sale, there is nothing to stop you from familiarizing yourself with what is on the market and should you find a suitable home before you have a firm offer on the existing property, the “subject-to-sale” method may be available.
3) If you get an offer on your existing property before you have found something you like, then you do have the luxury of being able to drive a tougher bargain (to make lesser concessions on your asking price). Furthermore, you can negotiate a possible long possession of yours to provide ample time to look for another property. I personally have negotiated at times up to 6 months or more for sellers who have not found another home before selling.
4) If your buyers are renters, then a long possession date should be no problem. A longer possession date could be a bargaining factor and should be attempted on all offers allowing you more time to look for your next property.
5) After you have received a firm offer with a substantial deposit (for your peace of mind), you can get your mortgage financing pre-approved for your next purchase.
6) Try to drive a favourable purchase price on your next purchase. The owner of the property you want to buy will view you as a ‘cash buyer’ given your home is sold and will be more disposed to making price and possession time concessions.
7) I suggest the longer the possession, the larger to the deposit. Although virtually all deals close, as no buyer wants to face a law suit for not closing, a very long possession may give a buyer too much time to deal with possible buyer’s remorse.
8) If you sell first and buy later, there is nothing to stop you from looking while marketing your property, and if you play your cards right, you will hopefully sell high if the current market is active, which it currently is, and secure you next home from a strong buyer perspective with no property to sell allowing you to compete stronger if you find yourself competing offers for a new home.
Regrettably there is no universally perfect solution to this dilemma. You will have to weigh the risks of having to move before the next place is available. For instance, if you bunk-in with friends or relatives or rent temporary quarters, there is the expense of having to move twice, storing furniture somewhere and possibly having to put a pet into a kennel etc. For some, there may be the question of where the children will go to school. For what it is worth, all of these problems are surmountable and merely inconveniences in comparison with the financial burden and fiasco of having to carry two properties for an indeterminate length of time.
Consider our services if you are selling or buying in 2023. The Chaulk Team – Selling Real Estate since 1994.
By Wayne Chaulk
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