Should I Buy a House First or Sell First?

If you’re considering selling your home and buying a new one, you may be wondering, “Do you have to sell your house first before buying?” or can your ownership periods overlap? Both options have advantages and disadvantages, and every family has special circumstances that make one option better for them than the other.

The decision of do you buy or sell your house first impacts everything from financing to timing. Factors to consider when deciding whether to buy or sell your house first include current market conditions, your financial situation, your risk tolerance, and how flexible your timeline is.

Market Conditions

Market cycles make an enormous difference in whether to buy first and then sell or vice versa.

Sellers Markets

Sellers’ markets are characterized by high demand and low supply. In these markets, sellers have the upper hand, with plenty of buyers vying for each property. Typically, homes sell at or above asking, and buyers are willing to forego most concessions.

When you’re buying a home and also selling one, you have the advantage as a seller, but you’re at a disadvantage as a buyer, leaving you with a dilemma: do you buy or sell your house first?

In a seller’s market, it makes more sense to sell your house and get the best price for it and then wait to buy a new one. You will need to plan carefully for this, because you will need a place to live in the interim, but you could benefit financially, and you’ll have more options if you wait for market conditions to change.

Buyer’s Markets

In a buyer’s market, you’re at a disadvantage as a seller, but at an advantage as a buyer. In this type of market, you’ll have more options for homes to buy, more negotiating power, and more control over conditions such as the closing date. However, as a seller, you may need to settle for a lower price, offer a lot of concessions, and be flexible on the timeline.

“Buying without having to sell first allows buyers to find the right home at their own pace,” adds Shauna Bailey, REMAX Crown Real Estate North.

If you’re in a buyer’s market, you might be tempted to buy first, then sell your house when market conditions change. However, this could leave you carrying two mortgages for months or even longer, and you could wind up selling your home at a discount when finances become unmanageable.

Overall, “It absolutely depends on the market situation,” says Justus Smith, RE/MAX Crown Real Estate (East). “If the client is selling in a hot seller’s market, then they would likely want to find their next home first and buy it. However, if they are selling in a buyer’s market, it’s better to get their property sold before venturing out to purchase another home.”

Financial Considerations

If you buy first, then sell your house, you’ll be carrying two mortgages, and you’ll also need to come up with a deposit and a down payment. In this situation, you need to have access to cash or quick financing. You can prepare for this by ensuring that you have cash on hand or that you qualify for bridge financing.

Risk Tolerance

Everyone has a different level of tolerance for risk. If you buy first, then sell, you place yourself at greater financial risk than if you sell your house before buying a new one. If you buy first, you also have more certainty about where you’ll be living. Do a careful assessment of your finances and whether you’re prepared to assume the additional risk.

“It really depends how comfortable my clients are to have the possibility to have to bridge finance or carry two mortgages. I always suggest to sell first, but there are a lot of buyers out there who are scared they won’t find what they are looking for,” says Elio Parente, RE/MAX City Realty.

Timeline Considerations

If you can be flexible about move-out dates and don’t mind temporary housing arrangements, selling first can work well. However, if you need certainty about where you’ll be living and the timing of your move, you should buy first, then sell. School and work considerations can play into this, so make sure everyone in the family is on the same page before you make this decision.

Buy First, Then Sell Your Home: Pros and Cons

Buying before you sell can be a great option, offering:

• Certainty about where you’ll be living.
• More time to choose the right home without compromising.
• More manageable logistics: easier to arrange renovations, organize around school start dates, and make workable moving plans.

This strategy also has disadvantages, including:

• Heavier and more immediate cash needs, including a deposit and down payment, before you receive your sale proceeds.
• The possibility of carrying two mortgages and paying twice the insurance, taxes, and utilities.
• Market risk: if your current home takes longer to sell or sells for less than you were hoping for, it can impact your cash flow.

Sell Your Home First, Then Buy

Selling your home before buying a new one has these advantages:

• Lower financial risk with no overlap in ownership
• Clarity in how much you can spend on a new home since you’ve already received the sale proceeds from your previous home
• Leverage as a buyer, since you’re essentially making a cash offer

This strategy also comes with these disadvantages:

• Housing gap: You may need temporary housing or storage, and you will have to do a second move.
• Timing pressure to find a new place to live.
• Risk of rising prices: if prices climb while you’re shopping for a new home, you have less control over what you spend.

Contingency Strategies

If you plan to buy a house but need to sell first, consider including a sell contingency in your offer. With this contingency, you can back out of the contract if you don’t sell your house before the closing date on your purchase. This can make your offer less attractive to sellers, but it’s a good way to make sure that you don’t have to apply for bridge financing and pay the interest attached.

If you’ll be selling first, consider negotiating a long closing with your buyer. You could also propose a rent-back agreement to give you time to find a new home.

Asking the Right Questions

In the end, whether to buy first, then sell your house, or vice versa, is about determining what’s right for you and your family. Ask yourself these questions:

• Do you have sufficient funds for a down payment on a new home, or are you counting on the proceeds from the sale of your current home?
• Could you handle carrying two mortgages, even if it’s for a few months?
• Is your housing market tilting toward buyers or sellers?
• Do you have any emergency plans should things not work out in your favour?

With careful consideration and the help of an experienced real estate agent, you will make the right decision about your home sale and purchase.