John Smith (not his real name) and his wife had not listed their condo when they starting looking for a single-family home. They knew house prices were on the rise and the trend was likely to continue.
They had their hearts set on a particular Toronto neighbourhood. When they found a place they loved, “We threw caution to the wind and bought that house,” he says.
Choosing a two-month closing date would surely give them enough of a cushion to sell the condo. It was on a main street, close to buses and across the street from the grocery store.
They thought, “We loved it, so others will love it.”
“For us, being on a main street was a great feature. For everyone else who came in, it was a detractor,” Smith says. “You can't have romantic notions about the product you're selling.”
Not only was the couple faced with carrying the cost of two mortgages, the condo's mortgage term was coming to an end.
“So we were questioning whether we'd have to renew this mortgage, yet we were going to be moving out,” he says.
Having worked out the finances beforehand, the pair knew they could handle the additional costs. Nonetheless, Smith says it was very stressful.
Whether to buy first or sell first boils down to your needs and your financial status. Had Smith and his wife put their condo on the market a month prior, they would have known there was a soft market for their particular type of unit, which may have led them down a different path.
In addition to rising prices, part of the challenge of buying a home in Toronto is there are too few houses to keep up with demand.
“The key story in the GTA housing market continues to surround availability of listings or lack thereof,” says Dianne Usher, president of the Toronto Real Estate Board, in a statement. “The result has been more buyers competing for fewer listings. This is why we continue to experience strong price growth.”
The average selling price during the first two weeks of December 2013 was up 10 per cent to $520,379, compared to $471,602 reported over the same period last year.
Kathy Essery, a sales representative with Keller Williams Realty in Toronto, says it is only natural for people to want to find their next home before selling the one they're in.
“Sometimes people get very excited about buying their new house, and I have to put the breaks on,” says Essery. “Just like the first time, before you do anything, you need to get your finances sorted out.
“Will your bank give you a bridging loan to help you buy your new home and then we'll sell your home? Or do you need to sell your home first so you know exactly how much money you have to spend?” she asks. “We need to determine these things first.”
Mark Salerno, Ontario manager of communications and marketing for the Canadian Mortgage and Housing Corporation (CMHC), says there are different costs to consider the second time around.
“One of the questions you'll be asking your lender is whether or not you can port your mortgage,” says Salerno.
If you have a lot of time left in your mortgage term and you have a good interest rate, you may want to carry the mortgage to the new property.
If rates have gone up, this option can save you money.
“It really comes down to the lending product you have,” Salerno says. Speak to your lender to learn what's available to you.
With more equity, second-time buyers can save money by eliminating mortgage-default-insurance costs. To realize this savings, a more than 20 per cent down payment on your new home is required.
Second-time buyers, however, cannot use money from their RRSPs through the HomeBuyer's Plan to help fund their next purchase, as they could the first time around.
There are higher costs to consider as well. “With your first purchase, there's a land transfer tax rebate. With your second purchase, there isn't,” says Salerno.
What else? “With your first purchase, realtor's fees were not your issue. Now you're paying those realtor fees, which are coming off the proceeds of sale. And there's tax on the commission,” says Salerno.
This cost can be hefty. Consider this: Last November, the average price of a detached home in Toronto was $855,188. If your realtor charges a 6-per-cent commission, you've just spent more than $51,000.
Be sure you understand all fees, terms and conditions before you sign any contract.
When prepping your home for market, some costs may put money back in your pocket.
The Appraisal Institute of Canada notes if you make a $1,000 investment on paint, more than likely you'll get your money back plus an estimated 50 to 100 per cent return.
Renovations that produce the highest returns include installing new light fixtures, replacing carpet with hardwood and adding a bathroom on the main floor.
When preparing to sell your home, Essery suggests — if you're not in a condo — tackling the exterior first.
“Make sure the trees and bushes are pruned, the bikes and kids toys are put away and everything looks nice and tidy,” she says.
To create buzz in the neighbourhood, Essery will place a Coming Soon sign on the lawn while the interior is being prepped.
Essery says the focus is simple: get rid of clutter.
“There is a reason why people stage their homes. It has to be kept in immaculate condition and presented in the nicest way possible,” Essery says. “It's all about making it appealing to a buyer.”
Ready your home for sale
When you're planning to sell your home, knowing your motivations and financial situation is important. Here, advice from the Financial Consumer Agency of Canada should get you on the right path.
To help you determine a sale price, check other homes in your neighbourhood. What are they selling for? Compare existing sales listings in your neighbourhood. If you choose to hire a real estate agent, he or she can help you determine this price.
This depends whether you use an agent, whether you try to sell on your own and how much it will cost to prep your home. Your home may be in need of renovations or you may choose to hire a professional to stage your home.
Interview all potential representatives. Here are questions to
get you started:
- How will you keep me informed?
- Can I have a comparative market analysis?
- How will you market my home?
- How many clients are you currently representing?
- Can I see your references?
Speak to your lender if you are unsure of your mortgage terms. Can you transfer or break your mortgage? What penalties or fees will you pay? Will your offer to buy another home be conditional on selling your current one?
Just like the first time, you will need to pay a slew of costs, including closing costs (legal, adjustments, mortgage discharge), moving costs (movers, truck rental, packing material, hotel if necessary), hookup fees for utilities, redirecting mail, any new purchases or home improvements (appliances, window coverings).
Sabrina Wong, Sales Representative
Century 21 Atria Realty Inc., Brokerage