Buy first or sell first? The real estate dilemma

Buy first or sell first? This is by the far the most common question we get asked, so we figure it’s worthy of a blog post and video!

Is this you? You want to move, maybe upgrade from your townhouse to a detached home. But, you aren’t sure exactly what to do.

Now, you’re faced with the dilemma of whether you should buy first or sell first. What’s the right answer? Which has the least risk and the most opportunity?

Well, the answer is that there is no right answer.

It comes down to a wide variety of factors and what’s important to you. So, before making the decision to buy first or sell first, ask yourself these questions:

What type of market are we in?

First, get a Guelph real estate agent in to tell you the details on the market. A reputable realtor will give you all the market facts without any pressure. Knowing what type of market we’re in, or specifics on what your house could sell for are key factors here.

For example, knowing you’re in a market with real estate bidding wars could easily impact your decision to sell first.

This means that adding conditions to your offer is going to be a challenge, specifically a sale of property condition (SOP). A Conditional offer in real estate (although we always recommend them) are tough in a sellers market where people are dropping conditions just to be competitive with their offers.

In a seller’s market, like we’re in today in Guelph real estate, there is more demand (buyers) for homes than there are available homes. As we posted recently, real estate bidding wars are back.

So, if you’re a risk averse buyer who wants a sale of property conditions, you should be looking at homes that have been on the market longer. These sellers may be overpriced and are more willing to negotiate.  

How picky are you?

Some buyers need to see 100 houses before they decide what they like. Some buyers do all their research online and only go to see homes that meet their specific criteria. Everyone is different.

But if you’re a buyer that has very specific taste in style, price and location,  you might consider buying first. Because, if you sell first there is no guarantee you’re going to find what you want. Your online property search game is good, because you’re checking realtor.ca hourly it seems- but there is nothing new of interest.

Depending on your unique goals and what you want from your house, the inventory just might not be there. And you might need to wait it out a bit before finding the one.

What’s your risk tolerance?

Lets face it- there is risk in almost everything we do, including buying and selling real estate. Whether you buy first, or sell first there is risk related to each scenario. This is more about how much risk (and potential reward)  you can stomach.

If you are averse to taking risks, it might be better for you to buy first. That way, you know your new home will be ready for you. But if you’re very budget concious, it may be best to sell first so that you know exactly what your budget is for your new home.

So, let’s get into a pro and con of selling first versus buying first

Pros of selling first

You’ll know exactly how much money you have.

The key benefit of sellng first is that you know exactly how much money you’ll have to spend on your new home. This is because you’ll have sold home with a sold price. Your mortgage broker will be able to tell you what you qualify for the best mortgage rate you can get.

Why does this matter?

In a hot market like we’ve seen in Guelph over the past number of years, many people decide to buy first based on what they think their house will sell for. Then, weeks later they list their house.

However, there are a number of variables that can influence a sale price: other similar listings that are for sale at the same time as yours, the condition of your home vs other recent sales, the market conditions itself and more.

If you buy first and then can’t get the sale price you want on your home- you’re stuck. You’ve already committed to the new place and have to sell regardless of what price you get. Not a good place to be.

Cons of Selling First

The obvious con of selling first is that you’ve committed to moving on a specific date, but don’t yet have a place to move to.

As previously mentioned, if you’re the type of person who has very specific requirements, you may not want to go the route of selling first. However, there is a way around this:

If you’re selling first, you can always request a long closing date. A long closing date could be anywhere between 90- 120 days. This allows you more time to shop around and/ or wait for the right house to come along.

One word of caution on a longer closing though: typically a bank will require a home appraisal. If there is a long closing and the market declines, the home may appraise for less on closing. This could have financial implications for the buyer and may (although rare) cause issues on the closing date.

Pros of Buying First

By buying first, homeowners are less rushed to find the right home, so they can spend time making sure the new house fits as many of their needs as possible. And, take their time to find it.

Buying first is the “traditional way” of the buy/ sell transaction.

This type of process is best suited for those who are risk averse and need to know that they have somewhere to move to. And, if you have very specific areas, styles or features of a home that you want, you can patiently wait without risk.

Cons of buying first

The major con of buying first is that you’ve committed to take possession of a new house on a specific date, but haven’t even listed your own home for sale.

Additionally, there is financial risk. If you bought your new home based on what your mortgage broker or bank pre- approved you for, it’s likely based on getting a certain sale price for your existing home. And, if you don’t- well, that’s a path no one wants to go down. You’ll be stuck scrambling for cash.

The other consideration that you want to try and line up the closing date of your existing home with what you’ve agreed to on your new home purchase.

What if you just committed to take possession of your new home on August 1^st, but the best closing date you can get on your exsiting home is August 15? That means you require bridge financing, which is essentially borrowing the funds to buy your new home on August 1 and “bridging” the gap until your existing home closes on August 15.

Get in touch

Not sure what to do? The first thing you should do is talk to a realtor who knows the local market. Beth and Ryan Waller are Guelph real estate agents with Keller Williams Home Group Realty. We can guide you!