Your family is growing and you need a home that can grow with you. So, as you start thinking about your impending move, you’re left with the lingering question “should we buy first or sell first?”
“While there is no ‘right’ answer, it’s important to know the potential pros and cons of both options,” says RECO Registrar Joseph Richer. “Regardless of whether you buy first or sell first, it’s a good idea to have a contingency plan in case your closing dates don’t align, leaving you with two homes, or no home, for a period of time.”
Speaking with your registered real estate professional before starting the buying or selling process can help you decide which route is better suited to your family’s needs.
Buying first can make the house hunting experience more enjoyable. Without a closing date looming on your existing home, you’ll have time to wait until the right home comes up for sale. It can also be less stressful knowing that if your offer is unsuccessful, you can wait for the next opportunity to come up.
The downside to buying first is if you are unable to sell your home fast enough, you will find yourself owning two homes at once. The result could mean paying two mortgages at the same time, not to mention all the other costs of home ownership. Additionally, you may have trouble securing a mortgage for the new home.
As a buyer with an existing home to sell, you can protect yourself by making your offer conditional on the sale of your current home. That means if you’re unable to sell within a specified period of time, you’re able to back out of the transaction. However, it’s worth pointing out that this condition will likely make your offer less attractive to the seller, especially if you’re buying in an area with a hot market.
The biggest benefit of selling first, aside from removing the risk of owning two homes at once, is you’ll know how much money the sale brought in, which will help determine how much you can afford to pay for the next place.
As helpful as that is to know, the challenge is that you’ll find yourself in a race against the clock, with your closing date looming and potentially no home to move into when you move out of your current one. If you’re not careful, you may end up rushing the buying process and settling for a home that isn’t ideal for you, or paying more than you planned because you feel pressured.
Have a contingency plan
Regardless of which route you choose, it’s a smart idea to have a back-up plan in place in case you are left with two homes, or no home, for a period of time.
If the sale of your home closes first, you might consider a short-term rental or moving in with family or friends. This could be better than settling for a less-than-ideal home because you are rushed.
If the purchase of your new home closes first, you might need something called “bridge financing” to cover the down payment and other closing costs until the sale of your current home closes.
“No matter which option you choose, it’s important to remember that a registered real estate professional is knowledgeable about market conditions and will offer advice and solutions to guide you through the process,” says Richer. “They will be able to discuss various scenarios to make sure you have realistic expectations about what may happen and help you come up with a plan that works for you and your growing family.”
5 tips for keeping a cool head in a hot market
Knowing the right questions to ask and steps to take before starting the house hunt is one way to help keep emotions in check. And, many common home buying missteps can be avoided by following these five tips.
1. Read and understand everything before you sign
When you hire a real estate representative to help you buy or sell a home, you will be asked to sign an agreement that defines your relationship with the representative’s brokerage. It is a legal contract that contains rights and responsibilities for both parties. Similarly, if you purchase or sell a home, you will be asked to sign a legal contract to complete the transaction. These are just two examples of real estate agreements that are legally binding, meaning you typically can’t back out of the agreement once you’ve signed on the dotted line. That’s why it is important that you understand everything in the agreement before you sign. If you don’t understand something, ask your real estate representative to explain it to you. If you are still not satisfied, you can seek advice from a real estate lawyer. And, if you’re not comfortable with the contents of the agreement, have a conversation about it with your representative before signing.
2. Be sure you and your representative are on the same page
When working with a real estate representative, it is important that both of you have a mutual understanding of what services he or she will be providing to help you buy or sell a home. Have a thorough conversation about the details and then make sure they are contained in the agreement you sign. It’s also a good idea to do some advance research on your own about the buying and selling process. Take the time to learn about the forms and contracts you will be expected to sign and what the conditions are like for buyers and sellers in your area. A good starting point for your research is www.reco.on.ca. An educated consumer is an empowered consumer. By doing your research and making sure you and your representative are on the same page, chances are you will avoid surprises down the road.
3. Leave your emotions at the door
Buying or selling a home can be an emotional rollercoaster. The best way to prepare yourself is to make a plan in advance and stick with it through the process so that you will make informed decisions you won’t later regret. If you are a buyer, decide where you want to live and which features in a home are important to you. Determine your maximum budget and then stay firm, even if a bidding war arises. If you are a seller, decide in advance what price you need to get for your home and how you want offers to be presented to you. By making a plan and sticking with it, you will have an easier time walking away from a deal if it’s outside your comfort zone.
4. Know your tolerance for risk
In a hot market, you may be tempted to submit an offer to buy a property without any conditions attached so that you get a leg up on the competition. However, before deciding to skip the home inspection, status certificate review or the financing clause, you need to consider whether you’re comfortable taking on that level of risk. Can you afford to fix a major issue with the home that an inspection may have detected? Or potentially lose your deposit if your lender denies your financing? If not, then waiving conditions may not be the way to go to win a bidding war for a home. If you do end up waiving conditions, be sure you have a contingency plan in place to manage any financial risks should they arise.
5. Be flexible and have a back-up plan in place
Real estate transactions can happen at lightning speed, which means even the best-laid plans might have to be adjusted. The best way to prepare for something unexpected is to do some advance research on how the process works. Before getting into the market, learn about the pros and cons of selling first versus buying first. Assess your tolerance for risk and determine how you can lessen those risks – possibly by attaching conditions to your offer. You should also build a contingency plan that will help you manage a situation where you find yourself owning two homes, or no home, for some period of time. By preparing ahead of time, you will be well-positioned to respond to quick developments in your real estate transaction.
There’s no shortage of information available about buying and selling real estate, though much of it focuses on market trends and how to get the best price. But you also need information about your rights and responsibilities as a buyer or seller. How do you ensure you are protected?
Fortunately, the Real Estate Council of Ontario (RECO) is here to help. We work to protect people just like you and enforce the rules that real estate professionals in Ontario must follow. That means we can offer buyers and sellers impartial advice
on how to protect themselves and ask the right questions before making one of
the most important financial commitments of your life.
Three pillars of protection.
All brokers and salespersons in Ontario are registered with, and regulated by, RECO. That’s why working with a real estate professional provides buyers and sellers with three pillars of protection: Knowledge, Professional Standards and Insurance.
Real estate professionals must complete courses before they can enter the real estate sector. And once they are in the profession, they complete additional courses every two years to keep their knowledge up-to-date and their skills sharp.
Brokers and salespersons are required to uphold professional standards that emphasize treating anyone involved in a transaction with fairness, honesty and integrity, and following rules and regulations that are there to protect consumers. In the rare instance that something goes wrong and you want to complain about your representative or the brokerage, RECO will investigate the complaint and take steps to hold the real estate professional accountable for their actions.
Deposit insurance provides you with peace of mind knowing that your hard-earned deposit will be held in trust and insured against loss, insolvency or misappropriation by a brokerage.