This the the real estate version of the old riddle, “Which came first, the chicken or the egg?”
The best way to figure out which order is right for you is to make a list of the pros and cons of each option to help you decide. Here is our list of pros and cons to get you started:
Buy First – Pros
- The most obvious benefit to prioritizing your purchase is that you can be picky about finding the perfect house.
- There is no time pressure. If you don’t see what you’re looking for, you can just pause your search until something suitable becomes available.
- In a hot market where multiple offers are the norm, you’re less likely to be tempted to overspend if you know you aren’t ‘under the gun’ because of a looming closing date on your current home.
Buy First – Cons
- The pressure to sell your current home increases as the countdown to closing day on your new home continues.
- You lose some leverage on your sale, since you likely no longer have the option of rejecting offers that don’t meet your expectations.
- You may have to accept less money for your home.
- There is a risk of having to carry two properties for a period of time if your home does not sell quickly.
If you are moving because you have a need for a very specific type of home that could be hard to find, buying first makes sense. The same goes for situations where you need to relocate by a certain date, for example, because of a job transfer. In a strong seller’s market, buying first is typically a safe bet.
We always recommend, though, that you have a plan in place, just in case things don’t line up perfectly. Talking to your lender about bridge financing is an excellent way to plan for a purchase and sale that don’t line up on exactly the same day.
We have had clients who were able to rely on their parents when all their best-laid plans were temporarily derailed. Mom and Dad are sometimes able and willing to help if the lender can’t do it.
Buying first is definitely the more aggressive approach to the process, and involves more financial risk. Remember that, once you have signed an Agreement of Purchase and Sale as a buyer, it is a binding contract, and you must complete the transaction. If you can’t close the deal on closing day, you could face legal action.
Sell First – Pros
- You will know exactly what your budget is for the next place. In a seller’s market, you may have more than you expected. In a buyer’s market, you may have to adjust your expectations on the buy side if you get less than you’d hoped.
- The stress of worrying about holding two properties is eliminated. You have the assurance that you will not get stuck on the hook for two mortgages, and you are free to put in offers on the houses you like with full knowledge that you can close on closing day.
- You can negotiate confidently on your purchase, since having your home sold may give you a bit of leverage over other buyers who still have a property to sell.
Sell First – Con
- Just the one: What if you don’t find the right place in time?
In a buyer’s market (though it’s been a donkey’s age since we’ve had a real one of those), selling first makes absolute sense. Even in a balanced market, where buyers and sellers have equal negotiating power, selling before buying is a safe choice. Only in a market with low inventory and high demand would the average buyer buy first.
Choosing to sell first doesn’t mean that you haven’t already spent some time house hunting. Likely, even if you choose sell first, you will take a bit of time beforehand to look around and see what types of properties are on the market and how much they are selling for. It’s a good idea to have in mind what your ideal home will be so that when you’re ready, you can move quickly.
It’s also wise to have a backup plan in place, just in case the right house takes a bit of time to come up. Could you live with relatives or take a short-term rental? Be sure not to wait too long so that you don’t get priced out of the market that is on its way up, though.
Selling first is typically the more conservative approach, since you eliminate the risk of having to carry two properties. There are other stressful side-effects of selling first, and it’s important to consider current market conditions before making any decisions.
Every Situation is Unique
Only you know the whole picture of your personal circumstances. Your finances, your living arrangements, your family’s needs – each of these factors will play into your decisions when it comes to buying and selling.
There are ways of dealing with challenges by expertly crafting Agreements of Purchase and Sale to build in some flexibility for buyers and sellers. With the help of real estate lawyers, we are sometimes able to use clauses and conditions to help plan for unexpected circumstances.
If you are unsure of what you’d like to do, we would be happy to discuss your options with you and help you to make your own list of pros and cons before you buy or sell!