Written by Sara Petta, Real Estate Broker | Re/Max Escarpment Realty Inc.

You’ve thought long and hard, and decided - you want a change of scenery. Maybe it’s more space for the kids, a fenced yard for Max, a workshop in the country; or it could be less space, so you can travel south for the winter without a worry. No matter your motive, the goal is often the same. You want to move house with as little inconvenience as possible. The process of getting from point A to point B can look very different from one client to the next, and ultimately we must answer the question of should I buy or sell first? 

Lets look at the pros and cons: 

Buying First

- For the particular buyer (but make sure your financing is in order!) 

The majority of people need the equity in their current home to purchase a new home. When you buy first, with plans to sell later, you move forward with a number of assumptions: your home will sell before the closing date on the new home, the sale price will be enough to be approved for financing on the new purchase, and the market won’t drastically change. Although we can make educated predictions on these factors, there are no guarantees. This opens you up to potential risk if you aren’t prepared with a backup plan. So, ask yourself these questions:

Can I carry two houses if my house does not sell before the closing date?

Would I be approved for financing?

Could I potentially rent the house, and keep it as an investment?

If the answer to all three of these questions is no, the risk is high and you may want to consider selling first, or buying based on a condition of sale. 

Selling First -

Negotiate with strength!

When you have a firm deal on your current home, shopping around for a home allows you to negotiate with strength. Your offer won’t need a condition of sale, making it more favourable to a seller, and much stronger if you happen to be in competition. You can shop with confidence knowing the exact sale price on your current home, and what the numbers look for financing approval on a purchase.

Now, let’s look at the potential cons. When you sell first, you are committing to providing vacant possession of your residence to a buyer on a certain date, regardless if you’ve found a new place to live. If you are going this route, it is key to carefully consider the closing date. A longer closing of 90+ days is ideal for this situation, allowing you ample time to secure a new home or potentially bridge finance for a smoother move. Keep in mind, you can always ask for your preferred closing date when selling, but it may not be what you are offered in the end. So, ask yourself these questions:

Can I usually find a handful of properties for sale that fit my criteria? ( Not super picky )

Do I have an alternative place to live if my closing dates do not line up? 

If you answered yes to the questions above, selling first may be the best option for you. Another option may be to purchase based on a condition of sale. 

Condition of Sale - An open deck 

Exactly as it sounds - a condition of sale allows a purchaser to purchase a property, but will only firm up on said property if the sale of another property occurs.

If a purchaser submits an offer based on a condition of sale, this does not mean they have to accept any offer, they have full control over what terms they will accept; for example: price or closing date.

Buying based on a condition of sale creates an open deck of cards - before you firm up and make your final decision, you will know all the details of both contracts; your sale and your purchase.

It sounds flawless, but we have to look at all angles. Condition of sale doesn’t work in all markets. In a strong sellers market, condition of sale offers can get put “at the bottom of the pile” since they are largely uncertain. Time limits and escape clauses on conditions of sale can also mean losing a property if you aren’t able to meet the necessary circumstances for you to firm up in time. 

Ultimately, deciding if you should buy or sell first boils down to your specific circumstance plus the current market. As your realtor and advisor, we will weigh the pros and cons and decide what is best for you. 

Notes From The Mortgage Professional

Written by Brandon Woodward, Mortgage Broker | Bold Mortgage Group 

When you are both buying and selling, there are a number of financial considerations that should be discussed with a mortgage professional to ensure you are informed of your options and limitations.

1. Is your current mortgage portable?

Most lenders will offer to port your mortgage, which is essentially transferring your current mortgage term as is, to another property without change. This is more important now than ever before, as many clients have locked in fixed rates that are well below those available today. Typically clients are increasing their borrowing needs through this move, so you would also want to discuss options for blending your rate, or providing a 2nd mortgage to cover any additional borrowing needs in the move.

2. Are there any mortgage penalties or costs associated with the move?

If you are not porting your mortgage to the new property, your mortgage will include a prepayment penalty. Most variable rate mortgages carry a simple three month interest penalty, however fixed rate terms are more often calculated by interest rate differential, which can result in penalties that are far higher than that of a variable rate mortgage. It is important to understand these in advance, so you aren’t hit with a surprise at closing, resulting in a shortfall in funds available to you from your sale. All mortgages would also include a standard discharge fee in addition to the penalty. 

3. Is Bridge financing available?

Bridge financing is required when you take possession of the new home, while still owning the previous home. This would allow you to access funds for the down payment on the purchase, before you have access to the proceeds from your sale. Bridge financing does require a firm sale on your home, so the lender knows there is a clear exit date to collect the funds they have advanced for down payment of the purchase. This is quite commonly used today, as it is convenient to hold both homes for 1-2 weeks to allow for a smoother transition, as opposed to closing the purchase and sale on the same day, limiting you to one day for the move. Bridge financing does have costs associated with it, so be sure to speak with your trusted mortgage professional to understand this, so you are better informed during the process. 

Feel free to reach out to brandon@boldmortgagegroup.com for any financing related matters. https://boldmortgagegroup.com