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’s better to buy first or sell first.
Moving from one house/property to another involves the financial risk of carrying two properties simultaneously or at worst ending up on the street and having to move twice. Here are 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 and financial resources.
IF YOU BUY FIRST:
1) You may have the satisfaction and security of knowing where you are moving to.
2) The smart thing to do is to include a clause in the offer stipulating that the purchase is subject to the sale of your house by a certain date (such as say 60 days).
3) If you need new financing, there will have to be an appropriate clause to that effect.
4) Because of these two “subject to” clauses, you will have reduced bargaining power (in comparison with a subject-free cash offer) i.e. the seller will be less inclined to negotiate on his/her asking price.
5) Then there is the uncertainty of whether your house will sell during the limited time period. To avoid tying up his/her’s client’s house needlessly, the listing realtor will insist on inserting an escape clause that allows the seller to market his/her house while he/she waits for you to sell and should they receive another acceptable offer in the meantime they will give you 24 hours to remove all your “subject to” clauses and make your purchase offer firm and binding. Failure to do so 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 houses/properties.
7) Next, you will find yourself under pressure to sell: you have a limited amount of time to sell. Precious days will be wasted on getting your property on the market.
8) Selling in a buyer’s market (that we are in right now) compounds additional problems.
Overoptimistic/unrealistic sellers tend to overestimate their home’s marketable value and underestimate the length of time that is required to sell their house.
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. Everybody has seen the ads, “Owner is motivated, bring offers”. Some ruthless buyers may decide to wait and see how low you are willing/forced to go.
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 old house is sold. For many people, it is too risky to borrow bridge financing and to carry two houses. 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 low (due to time pressure) and /or you may lose out anyway on the house of choice.
IF YOU SELL FIRST:
The preliminaries of putting the house on the market can be taken care of without wasting precious time.
While your house is for sale, there is nothing to stop you from familiarizing yourself with what is on the market; should you find a suitable home before you have a firm offer on the existing house, the “subject-to-sale” method is available.
If you get an offer on your existing house before you have found something you like, then you do have the luxury of being able to drive a tougher bargain (to make only small 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.
If your buyers are renters, then a long possession date should be no problem. A long possession date could be a bargaining factor and should be attempted on all offers.
After you have received a firm offer with a substantial deposit (for your peace of mind), you can get your mortgage approved and,
Try to drive a favourable purchase price on your next purchase. The owner of the house you want to buy will view you as a cash buyer and will be more disposed to making price concessions.
The longer the possession I suggest 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.
So, if you sell first and buy later, there is nothing to stop you from looking while marketing your house, and if you play your cards right, you will hopefully sell high and buy low.
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: if you bunk with friends or relatives or rent temporary quarters, there is the expense of having to move twice, storing the furniture somewhere and possibly having to put a pet into a kennel. 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 houses/properties for an indeterminate length of time.
Consider our services if your are selling or buying in 2016. The Chaulk Team – selling Real Estate since 1994.
This article is an adaptation of mine of a previously published article by A. Teichner in REM News
© 2018 by Wayne Chaulk