Do you buy or sell real estate first?
For most of the previous 20 years, sales of existing homes in the Greater Toronto Area, have risen on average between 4 - 9% per year. Undeniably, a period that has broken all rules, confounded the pundits and made the so called experts change their minds more than once.
Throughout this feverish buying activity one common element has been the historic levels of low inventory. Simply put, not enough homes for the move up buyer to comfortably choose from. The other side of the coin is a reminder that if your home is worth more than $800,000 in the Toronto market, only nineteen out of 100 of the prospective buyers can afford to purchase it. And do not forget that price, location, and condition are still the most influencing factors in any Real Estate transaction.
Well, if it is time to make your Real Estate move, do you sell first and worry about whether or not you will find a new home before you have to give up yours? Or, do you buy first and worry that you may end up having to carry two homes for a while, with the potential stress of two mortgages and other related financial burdens?
This has always been one of the more challenging Real Estate dilemmas, compounded lately by the current levels of activity and simply lack of inventory.
To have sold your home and then find yourself bidding against other anxious purchasers competing in a multiple offer situation, for the home your family have told you not to even think about losing. Or to have spent far more than you ever intended or budgeted for on your new dream home first, not including the zillions of dollars for renovations and decorating, and no one has even come to see your old home yet, let alone make you an offer.
There are no easy answers but if you break down the decision process into two parts the management of the decision becomes a little easier.
Which of the two evils will be easier for you to live with or, put another way, which option will provide your psyche with a greater level of comfort?
If you sell your home first and cannot find another, you could put everything into storage and perhaps take that long vacation you have always promised yourself.
You could move in with the in-laws (perish the thought) or more realistically you could find a place to rent short or long term until you find or wait for possession of your new home. No question, a second move will not be convenient nor will it be cost efficient. However, the cost of a second move and or rental could be substantially lower than carrying two homes for an extended period of time.
If you buy first and budget is a concern, you will need to be cognizant of what I call the “differential”. That is the dollar difference between what you expect to receive from the sale of your home and the actual amount you ultimately do receive. Plus what you hope you can buy for and what you actually have to pay. For example, you hope to sell your home for $600,000 but the market only delivers $550,000. The “differential” is $50,000 plus the additional amount required to finance the new home. You were hoping your new home would be $700,000, but based on the current market your new home cost you $800,000. Your original expectation would have been an upgrade of only $100,000, but is now actually $250,000. Can you afford the difference?
At the time of setting the price at which you will offer your home for sale, you would need to establish your best and worst case scenarios. Remember to factor in all the costs associated with selling the home as well as the amount needed for improvements at your new home. If you can live with the worst case scenario from an emotional and financial point of view, you may find that your level of comfort is with buying first. Furthermore, with appropriate marketing who is to say that you could not achieve more than you expect for the sale of your current home. Like most investments, there is a relative relationship between risk and reward.
If I were faced with a difficult medical situation my expectation of my physician would be that he or she provide me with the best advice, guidance, care and support to help me through that challenging time.
So should you expect the same level of advice, guidance, care and support from your Realtor to help you determine which would be your best move.
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