The most common question if you are looking to sell your house and also purchase another one, is “Should I sell or buy my house first?”
This blog will discuss buying a house after selling your current one. This covers strategies for buying first and when it’s best to sell before you buy.
We also offer analysis on the pros and cons to buying first vs. trading first so that you can decide which option is best for you.
Keep reading to find out everything you need to help you decide if you should buy a house or sell your home.
Strategies to Buy a House before Selling
Look at market data first to align your dates
You should know in advance how long it takes to sell your house if you are buying first. Knowing the average days on the market and the expected completion time for buyers will help you estimate when your home is ready to be sold.
If your average days on the market for your house is 30 days, and your normal completion time is 2 months after an accepted offer is made, you might want to negotiate a 3-month completion in your best efforts to coordinate your dates.
Be economical with your spending
You don’t know the value of your current home if you are buying a house before you sell it.
You don’t want to overextend yourself and end up in a situation where your home sells at a lower price than you expected.
Before you purchase, get a market assessment of your home.
To determine what your budget is, you need to have a rough idea about what you could sell.
A market evaluation for your home is a must. This will allow a realtor to come and view your property and give you an idea of the potential selling price. You can also get information about the average days on the market for your type of home and whether you are in a buyer’s or seller’s market.
This number, along with any additional information obtained from a preapproval with a mortgage broker, will help you determine your conservative buying budget.
You can negotiate for a few more days between the completion and possession of your sale
Your ideal time line should look something like this:
- You can sell your completed work
- Your purchase is complete when you are done.
- You can move in to buy
- Get out of the sale
This will allow you to avoid the need for bridge financing and make it easier to move in and out. You will need to negotiate a back-to-back completion/possession to sell your property. This should be done within a few days.
You should try to get a “subject for sale” condition
You are buying the home subject to your current home being sold within a reasonable time. This is one way to have a safety net. If your home does not sell within 30-60 days, you are free to cancel the purchase.
This is not acceptable in hot or balanced markets.
Bridge financing is an option
Bridge financing allows you to bridge the dates gap if you purchase your home before you receive the money. This basically takes equity from your existing home and makes the down payment for your new home. While you wait for your home to be completed, it also allows you to pay the interest on your existing home. To approve bridge financing, most lenders will require that you have a firm offer on both properties.
Once you have completed your sale, the proceeds can be used to repay the bridge loan and accrued interest. The interest can be very expensive.
Do I sell or buy my house first?
Pros & cons of buying before selling a home
- You have found the home that you love and aren’t under any pressure to move in.
- Before you decide to sell, you know when your preferred move-in/out dates are.
- Before you move in, you have the option to make improvements to your home.
- If your home isn’t sold in time, you run the risk of having 2 mortgages
- You may be motivated to sell and have dates in mind. This means you might need to “price it to sell” to avoid losing money.
- It is impossible to predict the price at which your home will sell. If it sells less, you may be in short of cash. However, if it does sell more, you might regret not purchasing something “better.”
- Bridge financing can be expensive and is only possible if there is a clear transaction for both the purchase and the sale.
Selling before Buying Pros & Cons
- You can know how much money you have available and, if the item sells for more, you may be able increase your budget to purchase it.
- It will be easier to get a new mortgage or bridge financing.
- Your offer will be more trusted by the seller than any other buyers who are still trying to sell.
- There is no risk in having 2 mortgages.
- You won’t feel less pressure to sell and you will not be in a hurry.
- You may feel pressured to buy something if there is not enough inventory.
- If the seller does not agree to your purchase, and your preferred dates are not available, you might need to find alternative accommodation or bridge financing.
Is it a good idea to buy before you sell?
Look at the market you are in.
The final decision about whether to buy or to sell comes down to your risk assessment and the market in which you are trading.
A seller’s market is one where there is more demand than supply. This results in homes being quickly sold at good prices. Seller’s markets are a good place to sell first, as buyers have less chance of becoming homeless and can find the right home quickly. A seller’s market has greater negotiating power. If you have already purchased, you can tell the buyer your preferred dates and work out a perfect arrangement to avoid having to borrow bridge financing.
If prices are falling in a buyer’s marketplace, sellers are less likely to sell and the average days on the market are high. This can make it very risky to buy before you sell.
If you are looking to purchase before you sell your home, you will be best placed in a seller’s marketplace.
Are you getting a hot deal on your purchase?
It may still be worth it if you have found the perfect home or are getting a great deal on your purchase.
This is a high-risk, high-reward situation. However, if the opportunity presents itself, it might be worth purchasing first, and pricing your home after that.
How is your situation?
Evaluate your situation to determine the best way to mitigate potential risks.
Consider, for example, if you own a large amount of equity in your current home that could be used to finance your purchase even if it doesn’t sell within the time frame you set?
Do you have a preference for a particular type of home or are you very picky about where to buy? You might be better off buying first if you are one of these people.
Compare the pros and cons to buying a house, before you sell yours. To help you make a decision, we can guide you to assess the risks and how your situation might play out.