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How To Know Whether To Buy Or Sell First

How to Know Whether to Buy or Sell First

Every existing homeowner is faced with the same dilemma. Does it make sense to buy first and sell second, or vice versa?

The answer: It depends on your individual circumstances and the current market conditions.

Selling your Home Ahead of Buying Another 
In a buyer’s market where there is a surplus of homes and they usually sit longer, it is ideal to sell first. In doing so, you will avoid the stress of not selling your current place before you take possession of your new one and the possibility of carrying two mortgages at the same time. Selling before buying also means you will know exactly how much you can afford to spend on your next home.

When Buying Before Selling Makes Sense 
It is always a risk to buy before you sell; however, in a seller’s market where the demand for homes far outstrips the supply and good properties move quickly, it is generally better to buy first. You will be less rushed to find the right home and when you do, you’ll be comfortable with the purchase price as opposed to feeling like you settled or overpaid just to get something quick. You will also avoid the inconvenience of having to move into a rental property if you cannot find the right home to purchase before the sale on your current one closes.

Add a Contract Contingency
If buying before selling, your Realtor could include a sale of property condition in your offer. This condition allows a purchaser to potentially secure a home while selling their existing one, subject to a specified time frame. Should the buyer fail to do so, the deal dies and the buyer gets their deposit back.

To protect the seller, an escape clause will be added to the Agreement of Purchase and Sale that allows the existing homeowner to continue to market and show their property during this period and even accept another offer. In such case, the seller must notify the first buyer and provide a set period of time (for example, 24 hours) to remove the condition on their own offer and proceed with the sale or walk away from the purchase. This is known as the right of first refusal.

A sale of property condition is most commonly used in a buyer’s market and smaller Ontario communities. (It is rarely seen in offers on properties in Toronto.) When included, it can potentially put the negotiation in peril and may even come at a premium price to the purchaser, as the seller is at risk that the buyer’s home won’t sell.

Bridging the Gap Between Closing Dates
Whether you buy or sell first, it is possible that the closing dates of your old and new home won’t match. In this case, you will need bridge financing, which is a temporary loan (typically 60 days) that enables you to borrow the equity in your existing home to pay the down payment on your next one, while you wait for your current home to close. The cost of this type of financing is dependent on the size of the loan and whether you are working with a prime or alternative lender.