Switching homes: Should you buy first or sell first?

Here’s a common situation for those active in the real estate market:

A buyer is looking to purchase a property that is bigger, or in a better location than Buyer’s current home. Buyer can get financing, but is still not quite enough. However, Buyer currently owns a property, that when sold, has some profit left over to contribute as down payment. The question is then, should Buyer sell before buying, or buy first then sell?

Firstly, we need to reword the question. We already know Buyer does not have enough to buy into the intended price range. Therefore logic dictates Buyer should sell first. The question then should be, “Should Buyer list the current home before making offers on the next home, or make offers on the next home first then list?”

Second, what type of market is it? If it is a seller’s market, there is little to no chance the seller will be willing to accept a “Subject to Sale” clause. This clause is a Subject Condition for the Buyer, giving the Buyer an extended period of time to try to sell the home first before removing Subject Conditions. If successful, subjects are removed, and the purchase is firm. If unsuccessful, then the Buyer does not remove the Subject Condition and the purchase fails. The Buyer can request anything from 1 month to 3 months. Anyone can see how this is highly restrictive for the Seller. However, if it is a buyer’s market, the Seller is more likely to accept an offer with this clause. This would be due to the price being very good in regards to market conditions. There are methods to further protect the seller with such an offer, but that would require further discussion.

Third, we need to understand the implications of either method. If Buyer successfully makes an offer, removing subjects, with 3 months closing period and tries to sell the current home in this period, the risk is clear. If Buyer is unable to sell in time, Buyer is still liable to come up with the funds upon closing for the new home. For those that are fortunate enough to be in a financial situation where this isn’t an issue, this would be the preferred method of upsizing or moving to a new home. Owning two properties at once allows for a slower and smoother move without time constraints. Whereas for the majority of the population, listing the home first then making offers may be the safer option.

What happens when buyer lists home for sale first

  • Allows Buyer to see what other buyers determine the market value of the current home is, helps with financial planning of the new home purchase
  • If no one is making satisfactory offers, Buyer then knows the budget for the new home purchase needs to be adjusted
  • If Seller knows Buyer’s home is listed on the market and is priced well, Seller is more likely to accept “Subject to Sale” clause
  • Once Buyer has accepted offer on current home, can finalize financing for new home purchase

What if I list my home, accept an offer, get subjects removed, but still cannot find a home I like?

This is an entirely reasonable question. There are a number of approaches buyers have taken to solve this. They range from, listing their home and remain stubborn on price until they find a home they like, to listing the home at a very competitive price once they find a home they want to purchase.

Both comes with different risks and require clearly laid out plan and strategy with their real estate professional. Your situation is unique because there will not be another buyer with exactly the same circumstances. But with consultation and guidance, a real estate professional such as myself can help steer you in the right direction to ensure as little bumps as roadblocks as possible for your sale and purchase.

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