Should I Buy Or Sell First

If you already have a home and want to buy a new one you'll face a "buy or sell first" dilemma: you may have no house to move into if you sell first, or you may have to carry for a while two mortgages when you buy first.

Buying and selling at the same time would be the best scenario, but it may not happen. Have more insight into how the housing market works to reduce the cost of a transition between two homes.

Buyer's Market - Sell First

There're more homes for sale than buyers. It's much easier to buy than sell. Oversupply of homes drives prices down and selling takes longer. Most likely you'll have to drop a listing price. On the other hand, the market gives you more leverage to negotiate a better deal for a new house.

Why To Sell First:
  1. You'll know how much money you have to buy a new home
  2. You can narrow your search and negotiations to a specific price ceiling
  3. You can quickly make a firm offer which may get you ahead of other buyers
  4. You can obtain a higher selling price as you aren't under pressure to sell

Balanced Market - Sell First

A balanced market is equally comfortable for buyers and sellers. Prices are stable. You could be able to buy and sell within a resonable time. Most of real estate agents believe that in such a market it's usally better to sell before you buy, for the same reasons as mentioned previously.

Having decided to sell first you may need a temporary shelter for your family and possessions, until you buy another house. Research beforehand short-term apartment rentals and storage services, so you can estimate how much they are going to cost you.

Your other option may be renting back the house you have just sold. If the buyer doesn't have to move in right after closing, ask if you can pay a rental fee for staying longer.

However, in some circumstances you may decide otherwise. Let's say you've found a perfect house. If you consider it a golden opportunity which you don't want to miss, buying first may be the right thing to do.

When choosing this route, try to negotiate a distant closing day. 60 to 90 days into the future should give you enough time to sell and avoid extra cost.

Seller's Market - Buy First

Homes are in a short supply. More people buy than sell. Selling a house is easier and buying another one is much more difficult. Prices are higher and properties sell fast, due to a strong demand. You might get a better selling price, but will have to compete with other buyers.

Buying first in the seller's market is relatively safe, as it's reasonable to assume that your existing home will be sold quickly.

This market isn't for everyone, though. Bidding wars, giving up on some important conditions, or making hasty decisions would escalate the cost and increase your financial risk.

If you don't have a budget to cushion all these negatives, it might be safer to wait until the temperature of the market goes down.

Should you decide to buy first after all, plan with caution how much money your home can fetch. When you assume the lowest sale price instead of what you hope for, it's less likely that you'll find yourself in trouble at the end of a day.

How To Price A House

It's in your best interest to match your price with the actual market value of the house. Realistically priced properties have the best chance to sell within a reasonable time and close to what sellers ask for.

  • Don't presume that a higher listing price will net you a higher selling price
  • An overpriced home may not sell for a very long time
  • Avoid expensive renovations which will inflate the price above market value
  • Your price strategy should reflect current conditions of the market
  • Make the price responsive to seasonal market cycles
  • Ask your agent for a comparative market analysis (CMA) of the property
  • Research prices in the neighbourhood to verify your agent's estimate
  • Have your house appraised or pay for the CMA when you're selling on your own

Bridge Financing

If you want to buy a new home before your current house sells, you may need an extra loan for your down payment and to cover the cost of another mortgage.

For example, a bridge financing may cover a 30 day gap in cash flow if you sell your house in 90 days and bought a home which must be paid for in 60 days.

This is a short term, fixed rate loan, which can be prepaid at any time without a penalty. Its cost is in line with an open mortgage or a personal line of credit, and an administration fee is from $200 to $500.

Bridge loans are restricted by institutional lenders to 90 days. If you don't have a firm selling date set yet, you may have to consider a private lender.

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