Should You Buy First Or Sell? What’s Better For Homeowners?
In today’s unpredictable and fast-moving housing market, homeowners often find themselves stuck in a dilemma when upgrading or downsizing: Should they buy a new home first, or sell their current home first? This decision depends heavily on market conditions, personal financial situations, and risk tolerance. Both strategies have their advantages and potential pitfalls, which I’ll break down to help clarify the best approach for homeowners navigating this complex decision.
OPTION 1 – SELLING YOUR HOME FIRST
Pros:
You Know Exactly What You Have to Work With: Selling first gives you a clear financial picture. Once your current home is sold, you’ll know exactly how much equity you’ve built up and how much cash you have for your next home. There’s no guessing or assuming how much you’ll get from your sale, and this certainty can provide peace of mind when purchasing a new home.
No Risk of Carrying Two Mortgages: By selling your home first, you eliminate the possibility of juggling two mortgages. This is especially important in a market with high interest rates, as carrying two mortgages can stretch your finances to the breaking point. You’ll have the security of knowing that your previous financial obligation is behind you.
Strong Negotiating Position as a Buyer: Being an all-cash buyer or having your home sale settled already can put you in a much stronger negotiating position when it comes to buying your next home. Sellers love certainty, and when you’re not saddled with a contingent offer that depends on selling your home, you’re a more appealing buyer.
Opportunity to Test the Market: You’ll have the luxury of time to test the market and wait for the right offer. If homes in your area are taking longer to sell, this can give you peace of mind. You’re not racing against the clock to buy a new home while still hoping your current one sells.
Cons:
Temporary Housing May Be Necessary: The biggest downside to selling first is that you might not find your next home before the sale closes. This could mean moving into a rental, staying with family, or finding another temporary living situation. Short-term housing can be expensive and inconvenient, and moving twice is always a hassle.
Pressure to Buy Quickly: Once your home is sold, the clock starts ticking. Homeowners who’ve sold their home might feel pressure to buy quickly, possibly resulting in a rushed decision that doesn’t fully meet their needs. In a hot market, this can mean settling for less or facing bidding wars with fewer options.
Price Uncertainty for the New Home: If the market is appreciating rapidly, you may end up paying more for your new home than anticipated. You could sell in a hot market and then find yourself priced out of the neighborhood you wanted to buy in due to rising prices or stiff competition.
OPTION 2 – BUYING YOUR HOME FIRST
Pros:
No Rush to Find Your Next Home: When you buy first, you have the luxury of time to find the perfect home. There’s no pressure to buy something quickly, and you can be patient to ensure the next home you purchase checks all the boxes on your wish list.
Avoid the Stress of Temporary Housing: Buying first means you won’t have to worry about securing short-term housing or dealing with the hassle of moving twice. You can transition directly from one home to the next, which is far more convenient and minimizes disruption.
You Control the Timing of Your Sale: When you’ve already secured your next home, you can time your sale for when it’s most favorable. If the market is appreciating, you might decide to hold onto your current property a little longer and sell it at a higher price. This approach also gives you the flexibility to rent out your current home if the selling market isn’t ideal.
Cons:
Carrying Two Mortgages: One of the biggest risks when buying first is the possibility of carrying two mortgages if your current home doesn’t sell as quickly as expected. This can place significant financial strain on homeowners, especially if the market is slow or the property takes longer to sell than planned.
Market Uncertainty: There’s always a risk that the housing market could cool off between when you buy your new home and when you sell your current one. If home prices drop or your home takes longer to sell, you may end up with less equity than you anticipated, which could throw off your financial planning.
Contingent Offers Can Weaken Your Position: If you haven’t sold your current home yet, you may need to make a contingent offer on the new one. Sellers may be less inclined to accept offers contingent on the sale of another home, particularly in a competitive market where they have multiple buyers interested. This can put you at a disadvantage compared to buyers who don’t have contingencies.
FACTORS TO CONSIDER IN TODAY’S CURRENT MARKET
Current Market Conditions: Market conditions can dramatically influence which strategy is more advantageous. In a seller’s market (low inventory, high demand), selling first might give you leverage and result in multiple offers, allowing you to dictate terms. However, in a buyer’s market (higher inventory, lower demand), it might take longer to sell your home, so buying first can reduce stress.
Interest Rates: With rising interest rates, buying first may be more challenging, especially if you’re carrying two mortgages. Higher rates mean higher monthly payments, which can tighten cash flow and complicate finances.
Access to Bridge Financing: If you can secure bridge financing, buying first becomes much more feasible. A bridge loan allows you to borrow against the equity in your current home to finance the down payment on your new home, giving you flexibility to buy before you sell. However, bridge loans can be costly, with higher interest rates and fees, so you’ll want to ensure you’re comfortable with this option.
Your Financial Situation: Personal finances play a crucial role in this decision. If you’re in a strong financial position, with enough savings or equity to cover two mortgages for a short period, buying first might make sense. But if your budget is tight, selling first might provide the breathing room you need to make the transition without financial stress.
HYBRID APPROACH – CONDITIONAL SALES
For homeowners who don’t want to face the risks of either approach, a hybrid solution is the conditional sale. A conditional sale allows you to make an offer on a new home contingent on the sale of your current home. This can offer the best of both worlds—reducing the risk of carrying two mortgages while allowing you to start the process of buying before your current home is sold. However, contingent offers are often less appealing to sellers, especially in a competitive market, and you may face rejection.
FINAL THOUGHTS – WHAT’S THE RIGHT APPROACH?
Deciding whether to buy or sell first is a highly personal decision that depends on multiple factors like your financial situation, risk tolerance, and local market conditions.
If you’re in a strong seller’s market, where homes are selling quickly and for top dollar, selling first is often the safer and more financially secure option. You’ll have a solid idea of your financial standing and will avoid carrying two mortgages.
In a buyer’s market, or if you’re facing stiff competition in the area where you plan to buy, buying first might make more sense. You’ll have the time and flexibility to find the right home without feeling rushed.
Lastly, if you have the financial means or access to a bridge loan, buying first and then selling can provide the smoothest transition, allowing you to move at your own pace. But this strategy does come with higher financial risk and should be considered carefully.
For other great articles specific to buying a home and selling a home, click here and check out these articles also!
- Selling A Home In Ontario Right Now
- What Are The Costs Of Selling A Home
- How To Prepare For A Move
If you’re thinking about buying, selling or investing in Durham Region or Toronto, let’s chat! I can be reached at 647-896.6584, by email at info@serenaholmesrealtor.com or by filling out this simple contact form. You can also kick off your search for Durham Region homes for sale by clicking here.
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