If you already own a home and are looking to upgrade, downsize or just get the heck out of your neighbourhood, you have a tough decision to make. Do you put your home on the market and sell it first, or do you find your next home before listing yours? On the one hand, if it sells too quickly, you could be homeless and on the other hand you could buy a new home and you take possession before your home sells and now you're stuck with two mortgages. Yikes!
Luckily, there are some great ways to make sure you're never homeless and aren't paying two mortgages, thanks to carefully worded contracts, expert negotiators and timing based on your market.
First of all, nine times out of ten, my advice is to always try to sell before buying your next home. It's ok to browse a few homes or look online to see where you'd like to go and how much you're thinking of spending, of course. But actually shopping for homes before selling your home is putting the cart before the horse, in my opinion. Please consider the following scenario to demonstrate:
You're out shopping for homes and find the PERFECT home for you. You put in an offer with a condition that your home sells before the deal is firm. (good advice from your smart REALTOR ®). Next, the sellers make a counter offer much closer to their asking price than you'd expect, mostly because their REALTOR ® is telling them that your offer is weak because if they accept this offer, they will have to wait for your house to sell, which may take a long time depending on the market or pricing or the condition of their home, etc. Ok, so you really love this home and you accept their counter offer because this is THE house, even though it's a bit more than you expected to pay. The seller's agent also includes a 24 hour Option Clause that states that they can cancel your contract after 24 hours notice, if they receive a better offer (typically with less conditions). Essentially, they give you 24 hours to remove all of your conditions, or they are free to accept a different offer. Regardless, you accept the offer and you've now got an accepted, conditional offer on your dream home; time to put yours on the market! Your amazing REALTOR® works diligently and gets your home on the market the very next day. You've got a great house, but because you know you'll be paying more than you were hoping for your dream house, you list your house $10,000 higher than your REALTOR® recommends to try to make up the difference. Unfortunately you don't get any showings for the first few days; meanwhile, the house you have put an offer on is still getting showings because it's a gorgeous home and the seller wants their house sold. Unfortunately, you get a call from your REALTOR® who tells you that the sellers have received another offer and you have 24 hours to sell your house. Of course, you can't meet the deadline and your forced to lose your dream home. You're heartbroken, you lash out at your REALTOR®, you take up drinking and the rest is history....
In a good, active market, like we've been experiencing in Saskatoon and area, this is a very real scenario. Of course, this situation can work out for the buyer, which is great, but when it doesn't work out, it is very discouraging for everyone involved. I always try to express to my clients to never fall in love with a house until you're moving in because you never know what's going to happen. There's no room for emotions in the investment world. But of course, when it's your home, it's very hard to heed this advice.
On the flip side, if your first step is to list your house before you start looking, you can gauge the market activity on your home and see what kind of offers come in, if any. You may have been unrealistic with your price and may have to consider purchasing a lesser valued home as well.
Not convinced that you won't become homeless? Keep in mind that as the seller, YOU dictate what your selling price is and the terms of the sale. The buyer wants possession in 2 weeks? Counter offer back that they get possession in 2 months. If they really want your house, they'll make it work. If they're not willing to negotiate, YOU DON'T SELL THEM YOUR HOUSE. You have all the power.
Still not convinced this is the way to go? Another option is to counter offer back stating "Offer is conditional on the buyer purchasing a home (within a designated time period)". If you can't find a home, for whatever reason, you can back out of the contract, no harm, no foul.
Consider the following scenario regarding listing your home first:
Time to move. You call your REALTOR® and get your home on the market at your leisure. You browse some listings online to get an idea of what your money will buy. You've priced your house competitively and in a reasonable amount of time you receive an offer that is a bit lower than you'd like to accept and a quick possession. Because you're not in a time crunch to sell, you make an aggressive counter offer to see if you can get the buyers to pay more and you ask for a possession date two months from now to give you plenty of time to house shop. Since you've been looking online, you've noticed that there are many good homes in your price range that meet your criteria so you've got no concern that you won't find a suitable home. So, in this case, you forego the option of putting in a condition of you buying a home. The buyer loves your house so they accept your counter offer. While the buyer is busy working on satisfying their conditions, you're busy house hunting. You feel good knowing that you can make a strong offer, likely without the condition of your home selling. You know that if the buyer can't satisfy their conditions, you'll just have to be patient and wait for the next offer, without the concern of losing your dream home.
Of course there are a million variables in both of the above scenarios, but which sounds more appealing?
Bottom line is: if you sell first, you hold all the power and there are many ways to protect you from becoming homeless. You'll be able to make a very strong offer once your home is sold and you will likely get a better deal. If you try to buy first, it may work out, but the risk of losing house after house is incredibly demoralizing. You'll end up paying more for your house and you'll be constantly stressed that someone else will make a better offer on your dream home. This advice is especially true if you have a tougher house to sell (bad location, poor condition, very unique, higher price point, etc).
Last point I want to make is that this is a general guideline. Not a hard and fast rule. If you're thinking about making a move, talk to your REALTOR®, who I hope is me (shameless plug) and get advice on your specific situation.