You've decided it's time to make a move. Maybe you've outgrown your current home, you just got a new job which means it's time to move to another area of the city, or you've decided it's time to downsize. Whatever the reason, you're probably wondering what your best strategy is, should you buy first or sell first? Each has its own pros and cons...
Sell First:
This is the more conservative approach, but it does have some benefits. First of all, once you have sold your house, you will know precisely how much money you have to work with. With a concrete price range, you’ll be able to narrow the pool of houses before you begin looking, and negotiate accordingly. In this market, sellers are not likely to consider a “subject to sale” offer, and if you’ve already sold you’ll be in a position to make firm offers. You can be first in line with an unconditional offer you know you can afford. If you have already sold your ,house, you probably have a wider opportunity to look around, negotiate, and find the best deal and fit for you and your family.
On the other hand, if you don’t find the right property before the closing date of the house you’ve already sold, you may have to look for temporary housing until you do find what you’re looking for. That could mean a few weeks with the in-laws, other family or a rental until you find your next home.
Also, if you have a mortgage in place on the home you’ve sold you’ll pay a discharge penalty (usually an amount equal to 3 months interest). Most lenders will credit this back to you when you transfer your mortgage and complete the purchase of your next phone, but the clock will be ticking, as most lenders only give up to 90 days between the two closing dates.
Before you opt to sell first, you should determine whether you have alternate, temporary options, in case you have to move from your house before you’ve found a new one.
Buy First:
This market is still pretty fast moving and you don’t want to miss any opportunities if the perfect home comes along. However, most sellers are unlikely to consider an offer that is "subject to sale", This may mean buying a new house without having sold your current home. It may be a matter of timing—grabbing hold of the home before it’s too late. The same might be said of a property you haven’t had your eye on previously, but that catches your attention due to its uniqueness or unbelievable price. If buying first means you don’t miss out on the real estate opportunity of a lifetime, it may be the best move.
If you buy another property and aren’t able to sell your current home quickly enough, you could end up having to finance both homes and shoulder the extra debt until you sell. You can get a financial appraisal or market evaluation of a home prior to selling, but this doesn’t guarantee the price you’ll ultimately receive for the home. Since your selling price will be an unknown, jumping into a purchase could be a gamble, particularly if your budget is tight.
If you buy first, you may be faced with owning two homes at once. Consider the fact that if your current house doesn’t sell quickly enough, you may be forced to sell it off at a reduced price in order align the closing dates of your two properties. If you decide to buy first, you may want to try to negotiate a completion date that is several months off to give some time and flexibility if your home doesn’t sell right away.
My family faced the "buy first or sell first?" question last year. My wife and I decided the best strategy for us was to sell first. It was comforting to know that the proceeds of our sale were in the bank, but we did end up in temporary accomodations with family while we shopped for our next home.
It took a while, but we were lucky to find our current home before our 90 day window with our lender closed, allowing us to keep our current mortgage rate and have our discharge penalty credited back to us.
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