August 22nd, 2022 | Real Estate

Should We Sell First or Buy First?

More and more we’re getting asked this exact question by our Sellers … “should we sell first, or buy first?” – a great question!

But, before we answer, let’s talk about the past a bit … or at least what has led us to this point.

Historically, certainly in the last decade, Buying before Selling was … more or less … an acceptable (but still risky) practice in Toronto. Why?  Because the markets have favoured Sellers.  When the average home takes 0-10 days to sell, it’s natural to err on the side of confidence (vs caution).  You’re looking to upgrade your home, so you buy, get the longest closing possible, and then sell, ideally lining up your closing dates … you’re golden! 

However, this is not a Seller’s market – at least not the kind we’ve become so accustomed to.  In fact, it’s starting to feel more like a Buyer’s market (even though in actuality it still isn’t from a numbers perspective – still more demand vs supply … borrowed money is still cheaper vs inflation).  Think about it – when, in the last 10 years, have you seen conditions in offers?  Houses sitting for more than 2-3 weeks, let alone a month or two, continuous price reductions, or terminated listings?  We’re actually seeing 1-on-1 negotiations – as in, no offer dates … a Seller today typically prices at/near what they truly want/expect and a Buyer brings them an offer in/around and sometimes quite a bit lower than their asking price … they negotiate and boom, we strike a deal … I know, it’s mind blowing … a real negotiation!

But, some Sellers are stuck on that January and February 2022 price train … despite the market having something completely different in mind – and this is where the problem lies. 

Too much inventory sits, too many price changes, too many terminated listings, as it’s taking too long for Seller’s to come to terms with our ‘new normal’ … this in turn is what’s shifting momentum to the Buyer.  Many Buyers are now taking a wait and see approach and certainly not jumping on every cardboard box on a lawn. 

In turn, Sellers must understand that overestimating the (potential) value of their home may not be prudent.  And so, a Seller today needs to weigh the pros and cons of Selling First vs Buying First carefully, based on their own particular circumstances and drivers.

So, here’s the advice we give our Seller’s today:

1.  Speak to your Realtor to get a good understanding of the potential resale value of your home, today

• A good Realtor should produce a CMA or a Comparative Market Analysis

• The CMA is an apples-to-apples objective evaluation of the potential resale value of your home based on the most recently sold comparable properties in your community – with adjustments made accordingly

2.  Speak to your Lender to see what the #s would look like (with CMA in hand)

• Once you sell, how much $ are you left with to buy?

• Use the lowest number provided in CMA to be safe

• What are YOU most comfortable with?

3.  Weigh the pros vs cons based on YOUR circumstances

Sell First

• Pros

·      You know exactly how much money you’re working with

·      No bridge financing required (most of the time)

·      No stress in wondering “what if we don’t sell, what do we do” if you’ve already purchased

• Cons

·      Limited time to purchase (up until closing) – so typically, 30-90 days .. meaning you’re homeless in that time (or need to find alternate accommodations)

·      If inventory you love doesn’t hit – you’d have to rent

·      If you rent – it’s 2x moving expenses, rent, storage expenses etc.

Buy First

• Pros

·      No ‘gun to your head’ – you have all the time in the word as you have not yet sold

·      You can wait on a ‘perfect’ match (or at least 7/10) before deciding to pull the trigger

·      You’ll 100% have a home ready once you sell – so no renting, no storage, no 2x moving expenses – you know where you’re going

• Cons

·      You have to sell – like you must (at least if the majority of the proceeds are coming from the sale of your home)

·      You don’t have the luxury of waiting if your closing is fast approaching – so if an offer isn’t as high as you’d like, you can’t wait too long as it may be too risky

·      You may need a bridge loan (happy to explain)