Should you sell your house before you buy a new one?

Do you start the process by selling or buying? Buy something and the clock starts ticking on selling your current home because you likely need that money to close the house you just purchased. In markets where sales are plummeting that could be a scary proposition.

So you sell first. But what do you do if you can’t find something you like in the neighbourhood you want. Remember, your kids need to go to that local school and be in the district. Are you prepared to rent for awhile?

People in the industry say the tradition historically has been to sell your home and then start shopping for the new one. But in this housing market, with multiple offers the norm and time on the market dropping in many cities, the process reversed and people starting buying, knowing their home would sell with ease.

Could the tide be turning in another sign of a slowdown for housing?

There are drawbacks to both selling first or buying first but the decision is very much based on your view of the market.

One option is to demand a closing date on your purchase a little further out, increasing your odds of selling. At the end of the day, you might need an escape clause… Renting is an option, but that market can be tight too.
You have to live somewhere but you don’t want to end up buying the wrong house.

Some agents say to sell first because more listings typically will come to market in the spring. But for a young family, selling first comes with the risk of not finding something in the right neighborhood.

You are going to need a lot of capital to pull off carrying two properties at once. Bridge financing at the banks is difficult to obtain without a buyer commitment for your existing home. The banks will provide bridge financing about two percentage points above prime if the closing date for the sale of your home comes after your purchase date, but you have to have a committed buyer.

Ultimately, if you buy first you can reduce the price of the home you are selling to move it.

Forget about trying to walk away from your purchase though, you’ve made a commitment to buy and left a deposit. You can’t just walk away, you’ll be sued because you are in breach of contract.

You can try to buy a home with a condition that says the purchase is subject to the sale of your existing home but you are going up against people with no conditions.

You can have the equity for two properties but you also need to have the income to carry both properties and the bank probably won’t extend credit to you for two homes without a high enough income.

Doug Porter, chief economist at BMO Capital Markets (AND MY CHILDHOOD BUDDY), said any shift in the trend to buy or sell first will depend on the city because some cities are still sellers’ markets.

“In a sellers’ market you can [buy first],” said Mr. Porter. “In most major cities, we are shifting. Personally, I would sell first.”

Ultimately, it comes down to your view of the market. You want to buy first, you have to be pretty confident you can sell. Are you?

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To Your Wealth

Gord