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Sell or Buy First?

This is always a big question....

 

Should you wait for the right home to come on the market before putting your current home up for sale or should you sell first and then go out and find what you want?

While there is no simple answer to this question, you will probably come to a definite decision based on your personal comfort levels with regard to the following.

There is no "right" answer.

Selling your existing home before buying another has some advantages. By selling first you know how much money you'll be getting on closing, which helps you establish a price range for the new home. Also, if you've already sold you don't have to make your offer conditional on selling your existing home. The down-side is that you may not be able to find a satisfactory replacement before the closing on your current home, which means you may need to find someplace to live temporarily. Or, you may be tempted to settle for something that isn't quite what you want.

Possible Strategies

Aside from your own personality and what risks you're comfortable with, when facing the dilemma of buying-first/selling-first, don't forget to take market conditions into consideration. Generally speaking, it makes more sense to buy first in a seller's market ( that is, when prices are rising). The rationale is that if prices are going up, it is preferable to lock in the price of the home you want to buy, meanwhile allowing you to subsequently sell your home at a higher price (assuming the seller's market continues).

During a buyer's market (when prices are falling), generally it makes sense to sell first. That way, you lock in the amount you'll receive for your current home before the market falls further, and you're able to take advantage of further falling prices when you subsequently buy. Of course, knowing whether it's a buyer's market or a seller's market isn't always straightforward and, because it depends on a number of factors, the market can change quite quickly. We can help determine what the market conditions are in your area and in the area in which you are looking to buy.

Condition-on-sale offers

One way of hedging your bet is to make your offer to buy conditional on selling your current home. With a conditional-on-sale offer, the offer becomes firm and binding only if you sign an offer to sell your current home within a specified period of time, usually 30-60 days.

When making any kind of conditional offer be sure the offer clearly states the condition that is to be satisfied and how long the buyer has to satisfy the condition. The offer should be phrased in such a way that some positive action must take place for the deal to remain alive. For example, the offer might state that it's conditional on the buyer signing an offer to sell his/her current home within 45 days, otherwise the offer becomes null and void and the deposit is to be returned to the buyer. This way, if after 45 days the buyer hasn't sold his/her current home, the offer is dead and the buyer doesn't need to do anything more.

The likelihood of a conditional-on-sale offer being accepted depends on a number of factors, including the vendor's personality (for example, whether the vendor is cautious and would rather have a conditional offer than no offer) and market condition. Vendor's are less likely to accept conditional offer in a seller's market because there are generally more buyers than sellers, so they believe another potential buyer is likely to come along pretty quickly. In a buyer's market there are likely to be more houses listed than interested buyers, so vendors may be more inclined to accept a conditional-on-sale offer, because they might be anxious to receive any offer.

Vendors reluctant to accept a conditional-on-sale offer can protect themselves by accepting a conditional offer subject to a condition that allows them to continue listing the house for sale during the conditional period but that requires them to give the person who made the original conditional offer the opportunity to waive the condition if the vendor receives another offer. (If the original offeror then decides to waive the condition, the original offer becomes firm and binding.) This is an especially attractive way of structuring the deal if a purchaser has asked for a relatively long conditional period.

Your Comfort level

The bottom line is that whether you buy first or sell first is a personal decision. There are a number of factors that might influence your decision, but there is no right or wrong decision. And, you can always hedge your bet by making a conditional-on-sale offer. If you decide to make such an offer, consider getting legal advice to ensure it's phrased properly. As well, if someone makes a conditional offer to buy your home, it's a good idea to obtain legal advice so that you understand what you're getting into and how you might best protect your interests.