For anyone who has ever considered making a move in the real estate market, the question of whether to buy or sell first can be one of the most complicated and difficult to answer. As a realtor, it's one of the most frequently asked questions we encounter from clients who are considering a move. The answer can be highly dependent on each individual's unique situation and goals, and requires careful consideration of many different factors. In this discussion, we'll do our best to explore all the relevant factors and help you make an informed decision that's right for you.
We'll look at the pros and cons of buying first versus selling first, and provide guidance on how to weigh these factors to arrive at the right decision. Whether you're a first-time buyer, a seasoned homeowner, or somewhere in between, we hope this discussion will provide valuable insights that will help you navigate the complex world of real estate with greater confidence and clarity.
Reasons to Buy Before Selling
In a market with tight supply, hot properties sell quickly. If you are searching for your dream home in a competitive market, it can be challenging to find a property that meets all your requirements and is within your budget. By buying your new home before selling your current one, you can take your time to find the right property without the pressure of a looming deadline. You will also be in a better position to make a competitive offer as you won't have to include a home sale contingency, which can be less attractive to sellers.
Comfort with Interest Rates
When you apply for a mortgage pre-approval, you can lock in an interest rate for a specific period, typically 90 days. If you plan to sell your home and buy a new one within this time frame, you will benefit from this interest rate guarantee.
However, if it takes you longer to sell your current home or find a new one, you may miss out on the interest rate you were hoping for. By buying before selling, you eliminate this uncertainty and can take advantage of current low interest rates.
Time for Renovations
If your dream home needs some renovations or updates, buying before selling can be an advantage. You can complete the renovations while living in your current home, without the added stress of trying to complete the work before moving in. This can also help you avoid living in a construction zone, which can be challenging and disruptive to your daily life.
Reduced Pressure to Sell
When you sell your home first, you may feel pressure to sell quickly, even if you aren't happy with the sale price or terms. By buying before selling, you eliminate this pressure and can wait for the right offer to come along. This can give you more negotiating power and help you achieve a higher sale price for your current home. It can also give you more time to declutter, stage, and prepare your home for sale, which can help it sell more quickly and for a higher price.
Now while those are all great points there's also some key points to consider that make a cause for Selling before you buy...
Reasons to Sell Before You Buy
Know Exactly How Much Money You Have to Spend on Your Purchase
By selling your home first, you will have a clear idea of how much money you have to spend on your next home. This can be a huge advantage when house hunting, as you can focus your search on properties that are within your budget. Additionally, if you have a specific budget in mind, you can set a maximum offer amount and avoid getting into a bidding war.
Avoid the Stress and Costs of Your House Not Selling
If you buy a new home before selling your current one, you may end up with two mortgages, which can be a financial burden. Moreover, if your current home doesn't sell quickly, you may have to reduce the price or incur additional expenses, such as staging costs or mortgage payments. By selling your home first, you can avoid these potential costs and reduce your stress levels.
Avoid Bridge Financing Costs
Bridge financing is a short-term loan that is used to bridge the gap between buying a new property and selling an existing one. This type of loan can be expensive and can increase your overall debt. By selling your home first, you can avoid the need for bridge financing altogether, which can save you a significant amount of money in the long run.
Better Negotiations When You Buy
When you sell your home first, you are in a better position to negotiate when you buy your next home. You can make an offer with a solid closing date, which can be very appealing to a seller. Moreover, if you don't have a home sale contingency, you can make a stronger offer than a buyer who does have a contingency, which can give you an advantage in a competitive market.
Less Pressure to Accept Low Offers
When you're in a rush to buy a new home because you've already purchased it, you may feel pressured to accept a low offer on your existing home. By selling your home first, you can take your time and wait for a fair offer to come along. This can result in a higher sale price and more money in your pocket.
Here are some important questions to ask yourself when deciding whether to buy or sell first:
What is your worst-case scenario? If you buy a home first and your current house or condo doesn't sell, what will happen? Can you afford to carry both properties? To lose the deposit on your new place and possibly get sued if you can't close? How much flexibility do you have with the price of your current property? Will your lender let you rent out your current home and still close on the new one if you really can't sell it? Prepare yourself for the worst-case scenario and ensure that you have a contingency plan in place.
What is happening in the housing markets where you are buying and selling? Different real estate micro-markets exist in Niagara, with varying hotness factors depending on the neighbourhood. Markets change over time, and it's difficult to predict what will happen. In an ideal world, you would sell in a hot market and buy in a lower market, but it rarely plays out that way. Keep an eye on the market trends and consult with a real estate agent to help you make an informed decision.
What will you do with your stuff if your closing dates don't line up perfectly? Storing your belongings can be time-consuming and costly. Plan ahead and factor in the cost of storage when budgeting for your move.
Where will you live if you sell first? If you sell your house or condo first and can't find your new dream home, what are your short-term housing options? Will you get a short-term rental, move in with family or friends, or stay in a hotel? Think ahead and have a plan in place to avoid any last-minute stress.
Where will you park the equity from your current home while you search for a new one? If you close on the sale of your house or condo before buying a new home, you need to park the equity from your existing home somewhere. Avoid the temptation of investing it in high-risk stocks and opt for a safe place where you're guaranteed not to lose money.
Will you encounter any mortgage penalties? Check the terms of your current mortgage, as many mortgages can be ported. However, be aware of any time limits to port your mortgage, as most are only portable for 90 days. If you don't close on your new property within that timeframe, you may face penalties.
How much uncertainty can you emotionally handle? Buying before selling can be stressful and uncertain. If you're not sure how much uncertainty you can handle, consider consulting with a real estate agent who can help you make an informed decision.
So should you buy or sell first?!
Ultimately, the decision comes down to your personal circumstances and risk tolerance. Selling before buying can give you more certainty and control over the process, but it also means potentially having to find temporary living arrangements and storage for your belongings. Buying before selling may allow you to find your dream home and avoid the stress of potentially being homeless, but it also comes with the risk of carrying two mortgages and possibly encountering mortgage penalties if your old home doesn't sell quickly.
Consider the current real estate market conditions when making a decision to buy or sell first.
If you're moving from a slower market to a more active one, it's likely beneficial to sell your home first to capitalize on the higher demand.
On the other hand, if you're moving from a hot market to a more subdued one, buying first may make more sense.
If finding the perfect new home is your top priority, purchasing first can give you more time to search.
However, if getting the best price for your current home is your primary goal, it's better to sell first.
Regardless of which option you choose, it's essential to consider all the factors involved, including your financial situation, the current real estate market, and your emotional capacity for uncertainty and stress. It's always a good idea to consult with a trusted real estate agent and financial advisor to weigh the pros and cons of each scenario and make an informed decision that's right for you.
Remember that real estate transactions are complex, and unexpected challenges can arise, so flexibility and contingency planning are crucial. No matter which path you take, be prepared for potential roadblocks and have a backup plan in case things don't go according to plan. With careful consideration, expert guidance, and a willingness to adapt, you can navigate the buying and selling process with confidence and achieve your real estate goals.