Written by Paul Liberatore
A friend of mine messaged me today and asked a great question, one that doesn't have a right or wrong answer. It does, however, have an answer that would really help you save a lot of stress depending on a few factors, including; the market condition, your buying power, and your risk comfort. So, you found the place you love after stumbling through an open house, the layout works, the area is where you want to be, and you just get that feeling, but the problem is that you have to sell your current place to be able to afford your new dream home. What to do?
Option 1. Buy First
This is the option I believe most Realtors prefer (why wouldn't you want to buy your client into a home, then they would have to sell right?) but probably not the option I recommend unless there is a “perfect storm.” A perfect storm to me would be an ascending market (you've bought so let the market increase over the time it takes to sell your current place), buying power (the banks have approved bridge/interim financing so that in the event your current place doesn't sell before you have to hand over the loot for your new place, the banks will finance it still, and lastly you being comfortable with some risk (possibly having two mortgages for a short period of time).
Option 2. Sell First
This is, in my opinion, a better option (but not the best, we will get to that later). When you sell your place first, you know the hard facts. When you have to be out by, what you can take with you, oh yes.... and HOW MUCH you will have in your pocket to spend on your new place. If you get an offer on your place, you can always ask for a long closing period, three to four months, which should give you enough time to find your dream home. There is also an option insert a clause where you could have a “floating” completion date, where if you have not found a place in that time, with some notice the seller can extend the completion date by a certain amount of time, again this has to be agreed upon by the buyer beforehand.
Option 3. Subject to Sale
You’ve probably guessed that this is my preferred option. It sounds fancy, but really it is pretty straightforward. Basically you as a buyer are writing an offer where both buyer and seller agree on the terms, the price, the completion date, the included items, the deposit etc. Both parties accept the offer, but it is “subject to the sale of the buyers property before xxxx date.” This was and is pretty common in a slow market (I know, when is that going to happen!) but not popular with sellers in a hot market, as they would look at it as tying up their property. THIS is where a good realtor comes in. These clauses come with a “time evoke clause,” where the seller can accept another offer and then evoke a 24/48/72 hour time period for you to either purchase the home (regardless if you have sold your place or not) or to walk away. There is a negative stigma around sellers accepting a subject-to-sale offer, but a good listing agent will explain to them that it is, in fact, a good thing. The seller has two options to sell the home now; they will sell it if Buyer 1 sells their current home, or if another buyer comes in and bumps that offer out. It’s a win-win for the seller!
I welcome any thoughts, questions and comments!