The answer is – it depends on why you are making the move, it depends on the market, and it depends on your financial position.
Remember when you bought your first home? Maybe you were renting or maybe even still living in your family home… either way you did not have to consider the risks – how do you buy when you need the equity you have in the house you currently own? How do you reliably know how much equity you have when you haven’t yet sold the house you currently own?
This is where being prepared and knowing market conditions can help you save money and make the most of your equity.
When it comes to buying and selling when you are relying on the equity from your current home to buy your next home, generally speaking, you should always do the most difficult part first. If the market favours the seller – buy first. If the market favours the buyer – sell first. But it still depends on your financial position and your tolerance for risk.
- The first step is to know your market. Engage a trusted real estate professional to provide you with a thorough market review which includes not only the current market value of your home but all of the costs involved in selling your home, the typical number of days or months it should take to sell and whether the market favours sellers or buyers. They will also be able to let you know what to do to prepare your home for sale so that it will sell for the highest possible price.
Pro Tip: Focus on the data – what have buyers paid for similar homes? How do those homes compare to yours in size, location and finish?
By this point you will likely have already been dreaming online so you will know how much you will need to pay for your next perfect home.
- The second step is to know your financial position. This step is crucial to allow you to know your negotiating position. Check with your lender to see if you would qualify to keep and rent your current home and how you would structure the financing of your new home. For this part of the process, you will need to know how much rent homes like yours are achieving in the rental market. This doesn’t mean you are obligated to keep your current home. If you are pre-approved to carry both properties you will be able to make a more competitive offer on your next home without a “subject to the sale” condition. More on this later.
Pro Tip: If you want to be sure that you find and purchase the perfect next home first do whatever you need to do to get pre-qualified to carry both homes including having a co-signer.
- The third step is to decide what to do first – buy or sell. For this step you need to know yourself and the market. If you want to find the perfect home first and the market favours the seller you could take the chance that if you buy first, your home will likely sell easily.
If you have been pre-approved to carry both properties – but don’t really want to – the worst possible scenario is that the market shifts before you sell your current home and you will need to sell your current home for less or keep and rent it.
If you have not been pre-approved to carry both, and you need to write your offer subject to the sale of your current home, and the market favours the seller – prepare yourself for disappointment. You could lose the perfect home if your offer is competing with other offers if those buyers do not have a “subject to the sale” condition either because they don’t have a home to sell or they are pre-approved to carry both homes.
If you are not in competition the seller will almost always add a “sellers condition” which allows the seller to accept another offer and require you to remove all of your condition within 24 or 48 hours. In a market which favours the seller this will be a likely occurrence.
If the market favours the buyer both of the above scenarios could still occur but you may have a little more time.
If you just want to be absolutely sure of the sale of your home and your equity position before you buy it is still important to check with your lender about the financing terms of your purchase. Has anything changed since you purchased your current home? Has your income or the terms of your employment changed? Have you increased your debt by purchasing a vehicle? It is not a given that you will qualify for the same or an increased or decreased mortgage amount.
In this scenario you would ideally negotiate a long closing date to allow you enough time to find your next perfect home. The risks in selling first are that you run out of time and have not found a home within the time allotted and you have to rent while you continue your search or that the market shifts and you have to pay more than you anticipated for your next perfect home.
During the time your home is listed for sale your trusted real estate advisor will likely have created a customized online search so that you see how often homes with your specific criteria are listed and sold so that you have a good idea of the likelihood of finding that perfect home. Just don’t fall in love until you have received an offer on your current home.
Pro Tip: Beware of guaranteed sale offerings. The terms can sometimes be expensive and eat into your equity.
A trusted real estate professional will help you choose the best path based on your financial position and level of risk tolerance.
We would love to work with you to achieve the best outcome for you!
Please call us at 403-686-1455 or book an online appointment – we look forward to speaking with you!
