Strategies for Buying a House Before Selling
Try to line up your dates by looking at market data first
If you’re planning on buying first, you’ll want to understand in advance what a reasonable amount of time is to sell your home. Once you know the average days on market and reasonable completion expected by buyers at this time, then you’ll be able to estimate the completion for your sale without having a contract in place.
For example, if average days on market for your home is 30 days and a normal completion at this time is 2 months from accepted offer, then you’ll want to try to negotiate a 3 month completion for the purchase in best efforts of lining up your dates.
Buy well within your budget
If you’re buying a house before selling your own, then one of the risks is that you don’t know how much your existing home has sold for yet.
To avoid overextending yourself in the unfortunate situation that your home sells for less than expected, you’ll want to make sure that you’re purchasing well within your means.
Get a market evaluation on your existing home BEFORE you buy
Knowing what you can afford will start with knowing a rough idea of what you could sell for.
You’ll want to obtain a market evaluation of your home, in which a realtor will come to view your property, and show you comparable active and sold properties to give you a reasonable idea of what your home could sell for in the current market. At this time, you can also obtain information on average days on market for your style of home, and information on whether you’re in a seller’s or buyer’s market.
Use that number and any additional information from a pre-approval with a mortgage broker to determine what your conservative budget for purchasing is.
Thinking about selling? Contact us for a FREE, no obligation market evaluation of your home by calling 604-341-9937 or email [email protected].
Negotiate for a few days in between completion & possession for your sale
Ideally your time line will want to look like this:
- Completion occurs for you sale
- Completion occurs for your purchase
- Move in to purchase
- Move out of sale
This means will help you to avoid bridge financing, and help you to move in and out with more ease. In order to do this, you’ll have to try to negotiate a back to back completion/possession for your sale, and aim for a few days in between the completion & possession for your purchase.
Try to land a “subject to sale” condition
A subject to sale means that you are purchasing the home conditional to you selling your existing home within a reasonable time period. This is one way that you can have a safety net that if your home doesn’t sell (ie within 30-60 days), that you have no obligation to proceed with the purchase.
However, keep in mind that this is typically only accepted in buyer’s markets (high inventory, low demand) and isn’t likely in a balanced or hot market.
Consider bridge financing
Bridge financing enables you to “bridge the gap” in dates if your home purchase occurs before you get the money for your sale. It essentially takes the equity out of your current home to make the down payment on your next home while you wait for your existing home to complete. However, keep in mind that most lenders require you to have a firm offer on both properties to approve bridge financing.
When you do complete on your sale, you can use the proceeds to pay off the bridge loan and any accrued interest. (keep in mind, the interest can be expensive)
Should I buy or sell my home first?
Buying before Selling Home Pros & Cons
Pros:
- You’ve found a home you really like and don’t have to feel pressured to settle.
- You know what your preferred dates are to move in/out before you sell.
- You have the option of making improvements to your new home before you move in.
Cons:
- You run the risk of carrying 2 mortgages if your home doesn’t sell in time
- Because you are motivated to sell & have dates in mind, you may need to “price to sell” and risk leaving money on the table
- You don’t know how much your home will sell for; if it sells for less you could be short money for your purchase, and if it sells for more you might regret not buying something “better.”
- Bridge financing is expensive, and can typically only be obtained if you have a firm transaction on both your purchase and sale.
Selling before Buying Pros & Cons
Pros:
- You know exactly how much money you’re working with, and if it ends up selling for more you might be able to up your budget for your purchase!
- You’ll have an easier time getting a new mortgage and bridge financing.
- The seller will have more confidence in your offer, because you’ve already sold you’ll be a safer bet than other buyers that still need to sell or are trying to negotiate for a subject to sale.
- You don’t run the risk of holding 2 mortgages.
- You won’t be in less of a rush to sell, and can hold on for a better selling price without pressure.
Cons:
- If inventory or homes you like are limited, you may be pressured to purchase something that is maybe all you needed… but not exactly what you wanted.
- If you’re at the discretion of the seller for your purchase and your ideal dates don’t align, you may have to get either alternative accommodation and/or bridge financing.
Is buying before selling a good idea?
Take a look at the type of market you’re in
Ultimately the decision to buy or sell first comes down to risk analysis and the type of market you are in.
In a seller’s market, there is more demand (buyers) than supply (sellers); which in turn results in quick sales of homes for good prices. Many buyers choose to buy first and sell second when it is a seller’s market, because they lower the risk of being homeless or not being able to find the right home AFTER they sell, and also have a high probability of selling quickly at top dollar. In a seller’s market the seller also has more negotiating power, and if you’ve already bought then when you sell you can tell the buyer what your ideal dates are and try to line them up perfectly to avoid bridge financing.
If you are in a buyer’s market where prices are falling, sellers have less leverage, and average days on market is high, then buying before selling can be quite risky.
If you want to buy before selling your existing home, then ideally you’ll be in a seller’s market.
Are you getting a smoking hot deal on the purchase?
If you’ve found the home of your dreams or you’re getting what you know to be a smoking hot deal on the purchase, then it may still be a good buy!
This is a high risk, high reward situation, but if it’s really too good to pass up then it may be worth buying first and then pricing your home to sell after.
What’s your situation?
Assess your situation and how you can combat the potential risks.
For example, do you have a lot of equity in your existing home – so much so that you could still finance your purchase if your home didn’t sell in time?
Are you a really picky home-buyer, or want a very specific type of home that rarely comes on the market? If so, buying first may be better for you.
Take a look at the pros and cons of buying a house before selling your own, and compare them to selling first. Assess the risks and how your situation could play out based on those to help you make a decision!
If you’re considering buying or selling and want a realtor with experience & strong negotiation skills to guide you, then reach out to us. Start a conversation by calling or texting 604-341-9937 or email [email protected].