Should I Sell Before I Buy, or Buy Before I Sell - Ask a Pro

Chris Fenton CEO of The Fenton Group, sits down and answers a common question from clients on this segment of Ask Your Professional. This month Chris talks about the age-old question of “should I sell my house before I buy, or should I buy my next house before I sell?” Let’s dive in:

“The thing about this is it really is a chicken or egg question. There is no right answer, there’s pros and cons to each way of doing it which we will get into.

One thing I do want to say before we get into that is, it changes depending on the market. I’m going to start by talking about a generic market, a very balanced market and talk about the pros and cons and then we’ll get into market specific pros and cons.

Buying Before You Sell

Let’s talk first about the pros of buying before you sell. The benefit of buying before you sell is this: you can go out and look at all the properties, take your time and find the right house to buy that matches most, if not all your wants and needs, and that’s a huge benefit.

The downside to doing it first, the buying first, is that when you enter into that contract, most people will be in a situation where they financially need to enter into a contract that is subject to the sale of their house. So, they’re going to write an offer on the new house and in that contract it’s going to say ‘subject to me selling my house at such and such address’. When you do that, you weaken your negotiating position, you weaken your stance in the negotiation because the seller wants to sell their house quickly and as pain free as possible.

When you do that, you’re weakening your bargaining position a little bit. If you put yourself in the sellers shoes, they’d like to get into a contract with somebody who is ready to buy now. Who is ready to do a quick building inspection, a quick mortgage approval and move on. When we have a subject to the sale involved, that’s something that the seller you’re buying from doesn’t have any control over. So as a result, your bargaining position is weakened a little bit, you end up in my experience paying a little more money for that house.

Selling Before You Buy

Now on the flipside, the pro of selling first is exactly that, you can walk in, you’ve sold your property, you can walk into the contract with no subject to the sale. You have your ducks in a row, you have your mortgage pre-approval and you can really come in and negotiate from apposition of strength.

The downside to selling first is that now you have a finite date, you have a contract in place for your property, where you have to move out, say 90 days from now. So in 90 days you have to move, that means you have 90 days to find the right house, enter into a contract, do your due diligence and complete it. You’re under the gun in terms of finding the right property, and it’s not uncommon for people in that situation to have to settle a little bit. Maybe they don’t take as long, and they don’t fond the perfect property. They might find something that’s missing a few of their wants and needs.

What About in a Strong Sellers’ Market?

In a strong sellers’ market like we’ve been experiencing for the last 12+ months, this buy or sell conversation takes on extra significance and extra importance because everything is a little magnified. On the buying side when you’re going to buy, it’s really difficult to even get an accepted offer in place when you have a subject to sale of a house. For parts of this market, it has been almost impossible. So, that leaves us in a position where we have to sell first. But now selling first, we’re under that timeline again and now there’s less inventory to pick from, there’s less houses to buy. Which created more pressure and creates more stress in my experience for the client.

There are a few things we can do in this market to address this issue:

Bridge Financing

One thing is bridge financing. If we are in a financial position where we can buy a property before we sell and finance both for a period of time with our bank or our lender, that can be a beautiful scenario. There is obviously some risk involved with that because if you thought your house was worth more than it was and you put it on the market and it doesn’t sell, you may have to get that price down to sell or it may take a little bit longer. Certainly, adds a little bit of pressure.

Put Conditions in the Contract as a Seller

A novel way to address this issue that has kind of crept up lately that we’ve only really seen in a very strong sellers’ market is putting the conditions as the seller in a contract when someone goes to buy your property, that says subject to you having x amount of days to go out and find a property. What this means is you put your house on the market, you do all the marketing, you attract multiple offers hopefully, but you’ve told the marketplace that any offer that comes in has to give me time to look for a property. If I don’t find a property I want to buy, then I can cancel the contract.

As you can imaging, this only works in a strong sellers market, where the sellers are really calling the shots. So you put this condition in place, you maybe have 3 weeks or a month to go out and look for a property and hopefully you find one to buy. If you don’t, the deal collapses. The downside to doing this of course is not every buyer can or will get involved in a scenario like this. So you’re taking your market and you’re shrinking it down onto a smaller market.

Sell First and Buy After

The last way to really address this issue is to put your house on the market and take that risk of selling first before buying. But dictating as the seller that you want a very long completion date. You want to have a 3 month or 4 month completion so by the time the buyer is contractually obligated to buy the house, you have a very long period of time to go out and find the house of your dreams. That is probably, for most people the best scenario in this market.

If you’re going to have that long completion, I think it’s a good idea to make sure that the deposit the buyer puts down on your property is substantial. It’s important to have a substantial deposit the longer the time between subject removal and competition.

My name is Chris Fenton with Royal LePage Pacific Rim Realty – The Fenton Group, thanks for joining me, I hope you found this information useful. If you have any comments or questions please feel free to leave them in the comments or give us a call we’d love to chat at 250-723-8786, bye for now.”