Thursday, November 17, 2005

FAQ - What should I do first - Buy my Home or Sell first?

This image is copyright by Mark Argentino - I made it!
Often I get asked this question - the answer is not simple. There are two situations you probably want to avoid. The first is situation is if that you find and buy your dream home before you've sold your current home, you may be faced with carrying two mortgages for a while, this can get expensive. The other situation is that you have an excellent purchaser for your existing home before you've found your next home, thus, you may find yourself living at your in-laws for a few months if convenient closing dates can not be negotiated. As you can see, this can sometimes become a tricky situation.

Solution
So how do you manage? It's Easy. Do your homework, research the market ahead of time and have a good idea about the neighbourhood and type of home you're looking for. It's also critical to do an honest evaluation of your family's needs and budget. You must also be very honest with yourself and even a little conservative when you estimate the current value of your home. It would be much better for you to make your purchase based upon an estimate of your sale price that is five thousand dollars less rather than ten thousand dollars more.

Speak to me first to discuss this decision in detail and I will give you a feel for the current market conditions and the best choice for you to make. Also, you should start your new home search as soon as we put your current home home up for sale. This will give you some idea of what to expect with your purchase and some peace of mind.

You also may have the option of 'bridge financing' in the event that the closing dates for your purchase and sale are not the same. You have to have your current home sold firm before you can go to the bank to get bridge financing, but this is a viable option and this is one option that is used by many of my clients.

The next two options depend a great deal upon the current market conditions and often are either not acceptable to the other party we are dealing with or cost you too much money for the peace of mind. Typically, these two options only work if the market is slow.

You may have another option, depending upon the market conditions. If you've found a home to buy before you've sold your current one, sometimes you can use "sale of your current home" as a condition on your offer. If you don't sell your house within a fixed period of time, you can choose not to go through with your purchase. This, however, is a difficult (if not impossible) condition for many vendors to agree upon and you may find that you have to give up some of your price negotiating leverage in order to attain some peace of mind.

Another item to consider is this. It is much easier to purchase your next home than it is to sell your existing home. Almost anyone can buy a home in a few days, whereas you may have to try for months and endure immense pressure with an unsold property on your hands.

Purchasing a home before you sell could cause some stress, especially if you need an exact amount out of the proceeds from your sale. If you've found a purchaser before you've found your next home, (and again depending upon the market conditions at the time) you may be able to use "purchase of a new home" as a condition when you sign back the agreement. Again, it will only be for a fixed time. Even if you have not found the ideal next house by the time the deal closes, you may still wish to proceed with the offer. As a buyer with a "sold house" you will be in a better position to negotiate price.

If you are more worried about where you will live once you have sold, one of the best options is to buy your next home home first, but have a longer closing. If you purchase a home today with a closing that is 90 days or even a little longer, we should have no problem finding you a home with that much time to work with. The downside to this option could be that the market 'softens' after you make your purchase and you end up have to take less money on your sale than you had hoped.

The "BEST" OPTION
If you are more concerned about your sale and the price you will sell for, then one of the best options is to sell first with a long (3 to 4 months) closing. This way you:

know the exact amount of money that you will have in your pocket for your next home purchase
you will know the closing date you need and you can make a 'firm' offer to purchase which will allow you to possibly get your next home at a lower price
it usually causes the least stress in the family and
it allows you to maximize your sale price and get your next home at the lowest price, so it's a financial win-win!
This is the option that most of my clients choose and is often the BEST option.
Conclusion
As you can see, as long as you do thorough research and preparation work ahead of time, you can reduce if not avoid the stress involved with the decision of buying and selling your home.

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