Should you buy or sell first in today’s real estate market?

Should you buy or sell first in real estate? 

Whether you should buy your next home first or sell your current home first is a perennial question in real estate. 

If you buy a new place first, you might be unable to sell your current house before the closing date. Then you’ll have multiple mortgage payments to contend with. Bridge financing—a temporary loan option designed for situations like these—can sometimes help, but not everyone qualifies for it. 

If you instead decide to sell your current place first, you might struggle to find and close on your next home before you have to move out. Either way, you could end up being rushed into making an enormous life decision—one with significant financial implications. 

So, what should you do? The right answer is specific to each individual, their financial situation and their risk tolerance. In a balanced real estate market, most people can buy and sell within 60 days if their home is priced appropriately. But when inventory levels are very low and buyer demand is high, the market favours sellers. Most people will buy first, as they’re likely to face competition in purchasing a new home. When inventory levels are high and plenty of options are available, the market favours buyers. Most people will sell first because homes often sit on the market longer.  

Why many people buy first

Many people choose to buy first because they are looking for a specific property that may take a long time to find. In these cases, buyers do not want to rush their decision or settle for less.  

The market has strongly favoured sellers for the past three years, so most people have been buying first and then typically selling quickly. During this time, most sellers listed their homes below market value and held an “offer night,” at which point they would review all offers received. Many properties sold with no conditions and above the asking price. With multiple competitive offers placed on the home, sellers could generally dictate the closing date. 

With rising interest rates, we are starting to see a shift in the market as sales cool and inventory levels rise. 

How to set your budget when you haven’t sold yet

The biggest challenge with buying before you sell is that you may not have a clear picture of what you can afford, since you’re relying on the sale of your home to bolster your down payment. 

The best way to set your budget when buying first is to get a market valuation of your current home and use that as a base to understand what you can afford. Speak to a variety of agents to get this estimate, and look at what similar properties have sold for in your area.

If you’re using a market valuation to set your budget, make sure it’s a realistic, conservative estimate. If you’re buying before selling, always use the lower end of your appraisal to set your budget. It’s also important to understand the other expenses of buying and selling, including agent commissions, taxes, land transfer fees and other closing costs. 

What if you sell first?

Sellers who want more certainty around their budget and would like to sell first can set a longer closing date, so they have more time to buy. A typical closing period is 30 to 60 days, but you might be able to negotiate a longer closing period of 90 to 120 days. 

Even with that buffer, you may still require temporary accommodations if you can’t find a place in time. You might end up renting for a while and putting most of your stuff in storage. If you have a family, two moves rather than one could make things considerably more stressful.  

If you’re selling an unconventional property 

If you believe your current property may be difficult to sell, you should consider selling first. If your property has anything that may stigmatize the home or make it more difficult for buyers to get financing or insurance, such as outdated plumbing and electrical systems, then it may take longer to sell. An issue with your condo’s status certificate (a document that contains details about the condominium corporation) could also hold up the sale.

Be entirely honest with your agent about the state of your property. They can give you advice on how best to proceed.

How to time your home sale or purchase 

Generally, I recommend starting to look for a home while you’re preparing to sell yours. That prep work generally takes at least two to three weeks, since it’s important to show the property at its best. 

A common misconception is that you need to close on both properties on the same date. In fact, doing so often makes moving unnecessarily stressful. Once you have a firm agreement on both sides, you can check if you’re eligible for bridge financing to cover any overlaps. Your mortgage broker can walk you through your financing options.

Regardless of whether you are buying or selling first, you’ll want to do both within a small enough window that market conditions are unlikely to change. A sudden shift in the market could leave you heavily leveraged or vulnerable to making a hasty real estate decision.  

This response was provided by Zoocasa Realty real estate broker Carlos Moniz.

Agent Insights is written by agents from Zoocasa Realty, a MoneySense content partner. Zoocasa is a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings on zoocasa.com or download its free iOS and Android apps.

More from Zoocasa:

• Does seasonality matter when selling a home?
• Why are homes selling for so much higher than the list price?

About Zoocasa

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