Do I Buy or Sell First?

Do I buy or do I sell first?.jpg

For anyone who currently owns real estate and is planning to move (whether to upsize or downsize), they are confronted with the question: should I buy or sell first?

There is no right answer to this question. The best answer depends on several factors — both personal and objective.

Factor #1: The market

Is the current market more favourable to buyers or sellers? As a general rule, if it’s more favourable to buyers (a buyer’s market), then presumably it will be easier on the buy side. In this case, selling first might make sense. If it’s favourable to sellers (a seller’s market), then it may make more sense to buy first.

Factor #2: The specific properties involved

Once you understand whether it's a buyer's or seller's market, consider the specific property. In addition to the general market conditions, is the property that needs to be sold an ‘easy sell’? Or, is it a niche product that —regardless of market conditions —might take a while to find the right buyer? Similarly, is the property that is going to be purchased something fairly easy to find and generally readily available? Or, is it something unique that would be challenging to find again? These are the kinds of things you need to think about in regards to the particular property.

Factor #3: The risks

If you buy first, you either add a ‘subject to sale’ clause or you do not. A subject to sale clause means that your purchase contract does not become ‘firm’ until your property is listed and sold. This seems like the ideal solution but it has its drawbacks. Virtually no seller is happy receiving an offer with a subject to sale clause, so they may be less flexible on price. Or, they may decline the offer altogether. Another disadvantage with this solution is that another buyer can come in at anytime and take the property away from you.

If you do not add the subject to sale clause, and instead choose a longer timeframe to complete on the purchase, then this introduces a degree of risk. What happens if your property doesn’t sell (and close) in time for the closing of your purchase? Can you afford to close on the purchase without having sold your existing property? ‘Bridge’ financing does exist (financing that closes the gap between the closing on your purchase while you wait for the closing of your sale) but this generally is approved only with a firm sale contract in place on the sale of your existing property.

If you sell first, this eliminates financial risk, but it means that you may not find a home to buy in time (or you do, but may not be able to close on it in time). You may have to temporarily move into a family or friend’s home or rent a home while you wait to close on your purchase and move in. This could obviously be very stressful and very time-consuming as many people have enough trouble with one move —let alone two.

Factor #4: Flexibility

Another factor to keep in mind is that on the sell side, you do have a greater degree of control over the time a listing spends on the market. You can always adjust the list price to boost the chances of the property moving quickly. However, this may mean selling the property for a price that is lower than you might have achieved with a little more time on your side. This may not be a huge deal if the property purchased is special, long-term, and was acquired for a good price. Conversely, if you are fairly open-minded on the buy-side, then you may have greater control there given that you could be happy in a variety of different options.

Note: re subject to sale: Similar to Factor #4, where a listing might end up getting sold for less it could have otherwise, adding a subject to sale clause oftentimes means paying more than you could have otherwise. And, this shouldn’t be surprising given that it’s generally quite disappointing for a seller given that they then have to wait for the buyer’s property to sell so getting the accepted offer is rather anti-climactic.

This question is a common one and many things must be taken into account. Please also note: these ‘buy-and-sell’ situations can be difficult to navigate and to minimize stress or problems it is truly critical to work with a highly effective real estate agent.