Should you sell your current home before buying a new one?
When people decide to buy a new home and sell their existing home in Victoria, BC, we are often asked, “Which should I do first – buy a new home before selling my old home or vice versa?” When it comes to real estate what’s the right order for buying or selling property?
FROM THE HOME BUYER’S PERSPECTIVE
If you are looking to buy a home in the Greater Victoria area, but also want or need to sell your existing home, there are a number of ways that you can accomplish this.
1. SELLING YOUR HOME BEFORE BUYING A NEW ONE
Some buyers decide to sell their existing home first before making an offer on their next house. This approach allows you to shop for a new home knowing that you will have the money in hand from the sale of your existing property. While this approach often gives you the peace of mind and perhaps the confidence and ability to make a stronger offer on your new home, it often involves the expense and inconvenience of a temporary move into rental accommodation. Because of the expense and inconvenience involved in two moves, and the tight rental market in the Greater Victoria area, many buyers are not keen on this approach.
In some instances, buyers who choose to sell their existing home first may be lucky enough to find a new home they like and be able to negotiate a possession date that matches the closing date of their existing home. However, this approach can be risky as finding a home that suits you and lines-up with your moving dates may limit your choices or may affect your negotiating position, especially if the seller prefers closing dates that do not align with yours.
2. BUYING A NEW HOME BEFORE SELLING YOUR OLD HOME
Home buyers in Victoria who are particularly worried that they won’t be able to find a new house that checks all of their boxes sometimes choose to purchase their new home before putting their existing home on the market.
This strategy carries a few risks. If your existing home doesn’t sell by the time you have to pay for the new one, and you don’t have sufficient funds to purchase the new house or condo, you may have to default on the purchase.
To avoid a default situation, we always recommend that you check with your lender to see if you can arrange for bridge or interim financing in advance of making an offer on a new property. Interim or bridge financing avoids a potential default situation. However, if your existing home doesn’t sell quickly you may be in the position of owning two homes, which comes with numerous costs that may be financially difficult and you may feel pressure to sell your existing home for a price lower than you would have otherwise accepted.
SUBJECT TO SALE OFFERS FROM THE HOME BUYERS PERSPECTIVE
In order to mitigate the risks involved when buying and selling a home at the same time, you may want to consider a subject to sale offer.
Once you have found a home that you like, we can include a condition that says the purchase of the new home is subject to the sale of your existing home. This condition is commonly known as a “subject to sale condition”.
Almost all offers to purchase contain conditions for the benefit of the buyers. The conditions that we see most frequently in Victoria are financing, title and inspection. We’ll call these the usual conditions.
In most offers, the usual conditions have to be waived within a certain period. In the Greater Victoria market it is usually within one or two weeks. The subject to sale condition typically allows you a further period of time after you have waived the usual conditions, in which to sell your existing home. If you are unable to sell your existing home within that further time period, then the contract is terminated. However, if you sell your existing home within the further time period, you remove the “subject to sale condition” and complete the purchase.
Because the seller does not know whether your home will sell within the time frame of the subject to sale condition, the seller will typically require a provision in the subject to sale condition called a “time clause”. A time clause gives the seller the right to give notice to the first buyer to remove conditions within a certain period of time (usually within 24 to 72 hours), if they receive another acceptable offer on their property. Once the notice is received, you have a decision to make. You can waive the “subject to sale condition” and complete the purchase or you can walk away from the purchase, in which case the second buyer becomes the purchaser of the home.
SUBJECT TO SALE OFFERS FROM THE HOME SELLER’S PERSPECTIVE
Should you accept an offer on your home that is subject to sale? We’ve already looked at offers containing subject to sale conditions from the buyer’s perspective. But what if you are selling a home in Victoria, what are the pros and cons of real estate offers with a subject to sale condition?
From a home seller’s perspective, a subject to sale offer is not as attractive as an offer that does not contain this condition. That’s because the sellers (and the buyers) have no certainty as to if and when the buyer’s own home will actually sell. Imagine if you receive two offers and both are identical except for the subject to sale condition. Which offer would you choose?
Does this mean you should never accept a subject to sale offer when you are selling a home? The short answer is it depends on the market and your property. In a sellers’ market, when inventory is low and demand is high, it may not be prudent.
Some buyers and their Realtors may decline to show a home with an existing offer with a subject to sale condition. But in practice, very few showings are lost because there is a subject to sale contract in place.
In a buyer’s market, or if your property appeals to a smaller target demographic because of its features or location, accepting a subject to sale offer may be a good strategy.
Having an accepted subject to sale contract in place can actually make your home look more attractive to potential buyers as they are aware that another buyer wants your home.
The other possible advantage of accepting a subject to sale offer is that often the price is higher than an offer without this subject, as the potential buyer knows their offer will not be as attractive as one without a subject to sale condition.
When acting for you, we carefully look at the real estate market conditions in the Greater Victoria area, as well as how properties are selling in your specific neighbourhood, before advising you on whether to accept an offer with a subject to sale condition.
In a seller’s market, such as we were experiencing in the Greater Victoria area in 2017, offers containing subject to sale conditions were virtually unheard of because very few sellers would consider subject to sale conditions when they were receiving multiple offers, some of which were unconditional.
Victoria real estate market has changed. Today, we are seeing more and more offers containing subject to sale conditions.
If you decide to accept an offer with a subject to sale condition, we would ensure you are able to consider other offers by including a time clause and would continue to market your property to other buyers. In the event that another buyer is found, we would help you negotiate the best possible price and conditions, before we trigger the time clause.
For the right property and given the right circumstances, an offer containing a subject to sale condition can afford home sellers and buyers in Victoria with definite benefits and minimal risks.
Whether an offer containing a subject to sale condition is right for you depends on a great number of factors. If you would like to discuss the pros and cons of a subject to sale offer, don’t hesitate to contact Audra Poole or Hal Decter at [email protected]
Newport Realty has been helping individuals and families sell and buy homes on Vancouver Island for over 30 years. The brokerage was founded by individuals who love Vancouver Island and are active members of the community – from downtown Victoria to Oak Bay, Fairfield to Sidney, or Saanich to Sooke – Newport Realty provides market experience and expertise.
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