When most of us buy our first house, the main decision factors are often convenience and low cost. But a growing family or the desire to finally own that dream home often sends us out shopping for a home once again.
As a professional real estate agent, I’ve helped many people buy their second home. My clients are sometimes surprised by how different the experience is the second time around. That’s because buying is easy and selling is easy, but doing both at the same time can get tricky. My job is to make sure that the process goes as smoothly as possible.
There are a lot of pitfalls that can happen:
- You could end up thinking you have a deal on your old house, only to have it fall through.
- You could be stuck paying two mortgages if your old home won’t sell.
- You could miss out on the perfect home because you weren’t prepared.
If you want to avoid the stress from a wild roller coaster ride, follow these steps when you’re considering your second move. They will help turn the experience into the fun and exciting one it should be.
1. Get Your Current Home Appraised
As with buying your first home, the first thing to do is to understand your financial situation. This will determine the price range for your new home. Please, please don’t start shopping around first! It’s all too easy to fall in love with a home that’s too expensive, or miss opportunities at homes you thought you couldn’t afford.
When getting your financial ducks in a row, start by talking to an experienced listings agent and getting your home appraised. Don’t make the mistake of having a price in mind or expectations based on what you want to sell it for. Get an expert opinion on what your home will really sell for. How do you tell what price is realistic? The real pros will back up their price with current market data.
Whatever that appraisal price is, it represents equity that adds to the amount your mortgage broker will approve for your new home, which is the next step.
2. Find Out What You Can Really Afford from a Mortgage Broker
The amount your mortgage broker will approve for your new home may be lower than what you can technically afford. That’s why you need to get pre-approved before you start house hunting. Unfortunately you can’t rely on online calculators because they don’t represent an official assessment and decision.
There’s another reason to get pre-approved for your mortgage: it means you can act fast when you find a house you love.
I can’t stress this enough: find out what you can spend first so you can start searching without wasting time and energy. It’s also important to account for closing costs in Ontario too.
3. Make Sure Your Old Home Will Sell
The critical thing to do if you’re thinking of juggling buying and selling is to make sure your home appeals to a broad range of people. If it’s too customized to your taste, it may put off some buyers. Don’t forget to declutter – people are not buying your stuff or your taste, they need to be able to see themselves living in the home.
To avoid surprises later on, fix any important issues before you put your home on the market. To be sure, you can have a home inspection by a reliable inspector. This will save you a nasty surprise later on when you think your home is sold but your buyer’s inspector finds problems.
In a nutshell, make sure your house looks its best and there are no structural, electrical, plumbing or other issues.
4. Decide What You’re Looking For – and Where
Needs vs Wants
Once you know what you can afford, it’s time to decide what you’re looking for in your new home. Make a list of the features your home needs to have.
Be very clear about needs vs wants. If you get distracted by nice-to-haves you can miss a perfect home. For example, if you tell me you want a 2-car garage, I’ll include that in my search. But that means I’m excluding dozens of available properties that may be perfect for you otherwise.
You can still mention wants, but make sure your agent knows they’re not dealbreakers. Be realistic: the longer your list, the longer it may take to find a house that works. Also keep your timing strategy in mind (see below) when you’re creating your list.
Location
One of the most important needs is location. Think about travel time to work, distance to schools and recreation if you have kids, and proximity to transit.
Your location needs will determine what neighbourhoods you can look at. Of course, different neighbourhoods have higher and lower popularity. Your realtor should be able to give you this information, and have the numbers to back it up. You will need to understand the demand for :
- The neighbourhood you live in now.
- The neighbourhood(s) you’re considering moving to.
These two things will help you figure out the trickiest part of moving to a new home: timing.
5. Decide Your Timing Strategy
Should you buy your new home first and then sell your current one, or vice versa? What about trying to buy and sell at the same time? These questions can make moving more stressful than it should be. These things will help you make your decision.
Your Approved Mortgage Amount
First, look at the number your mortgage broker gave you. In order to get a higher amount for their new mortgage, some people will simply need to sell first before they can buy. Others may be able to sell later on. For most, trying to do both is an option.
Demand
What the demand is like in your old vs new neighbourhoods will also be key factors. If demand is low in your current neighbourhood, selling first makes sense. If demand is high, it’s a lot safer to buy and sell at the same time.
You also need to understand how the market is doing overall. Is it a buyer’s market or a seller’s market? How your home measures up to the other homes in your area can also affect what the demand will be.
Do You Like to Live on the Edge?
Your personal risk tolerance will also have a part to play when deciding on selling first or buying first, or doing both at the same time. Even if your mortgage broker said you can afford to wait before selling, it may take time for your current home to sell. Until it does you will be paying for two homes.
In the end, let the numbers make the decision for you as much as possible.
The Risks of Buying First
As mentioned, the main problem with buying first is ending up with two mortgages.
But there are other traps to avoid. If you want to buy first or buy and sell simultaneously, you may be tempted to include a “first refusal” condition in your offer. This means you’re buying the home on the condition that you sell yours in a specified time. But this can backfire on you in several ways:
- Sellers don’t like it because it means the home isn’t really sold. You may have to pay more to get them to accept or they may flat out refuse the offer.
- Even if the seller accepts, the home is technically still on the market and the seller could accept other offers. Meanwhile, you may have done additional work like getting the home inspected, which costs you both time and money. You may lose out because they sold it when you were not able to remove your condition.
Instead, a better option might be to try and get a longer closing term by a few months. But again, this can weaken your negotiating position.
The Risks of Selling First
While selling first means you won’t be paying two mortgages, there are potential issues with this option:
- It may take a while to find the perfect home to buy. Meanwhile, you’re homeless.
- You’ll need to move twice.
- Trying to live with friends or family can put unnecessary strain on the relationship.
- Renting can be difficult, as landlords want long term contracts, not the chaos of month-to-month. Renting also means you’re spending money that could be going to your new mortgage.
In the end, most people go for simultaneous buying and selling. You can put your home on the market, and as soon as it sells you’re ready to buy right away as long as you’ve prepared. If you’ve got an experienced realtor who knows the market, you should be able to buy and sell at the same time.
6. Be Ready for Anything
It’s your realtor’s job to know every possible situation and what to do about them, including:
- What if your house takes longer to sell?
- What if you can’t find a house you love?
- What if your buyer has a delay in getting their mortgage approved?
I won’t kid, you, it can get a little dramatic. The secret is to have a realtor with the experience to know all the potential scenarios. That way you can head off the preventable, and have a plan for anything else that might come up.
A Guaranteed Home Sale Helps
Our team here at Paul Rushforth have sold more homes than any other firm since 2007 – that’s according to the numbers on MLS. Because we’ve seen pretty much seen it all, we’ll be able to walk you through the entire process, helping you make the right decisions at every stage.
We also offer guaranteed home sales: if we don’t sell your home before you take possession of your new one, we’ll buy it ourselves.
