Real Estate Talk:
Buying Before Selling

Why purchasing before selling is not a good idea

By Joseph Marovitch

Previously published in WestmountMag.ca

Some buyers shop for homes before selling their current residences. They have not placed their current property on the market but they are prepared to make an offer on another house conditional upon selling their house. These buyers assume, incorrectly, that their house will sell when they want it to. This is almost always a horror story.

A house takes time to sell. There is a process. The house has to be priced and prepared. The property has to be marketed for some time so the public becomes aware of it. This period of marketing time generates interest and momentum to get the price where it must be. After 30 to 45 days, if the house is well priced, if the market is stable and growing if the political conditions are moving in the right direction, if, if, if… then the house will sell quickly. There are a lot of ifs to be satisfied, with selling a house.

…there are only cons for the buyer and seller when buying a house conditional to selling the previous house.

This being said, there are only cons for the buyer and seller when buying a house conditional to selling the previous house. For the seller, accepting an offer conditional upon the buyer selling their house means the seller’s house is tied up. New buyers must be made aware there is a first right of refusal on the seller’s house. Most buyers do not want to provide an offer knowing some other buyer has the right to buy the house first. If the seller receives a second offer that is twice the first offer, the seller will pull their hair out knowing they are losing so much money.

For the buyer, making an offer with a condition of selling their house means:

1. Their offer must be very good to entice the seller to take the risk.
2. The seller, realizing that no house sells in a day (almost the same probability as being struck by lightning), starts to buckle and lower their asking price.

In the end, the buyer will pay a high premium to have a condition such as selling their house first and lose a lot of money in the process of trying to sell so fast.

There is very little upside to accepting an offer with the condition of selling the buyer’s house first and very little upside for the seller who has to advertise his house has a first right of refusal.

Here’s the right way to do it:

1. Put your property on the market.
2. Make sure your brokerage contract stipulates that you need 30, 60, 120 or more days to take possession so that you, the seller, have plenty of time to find your next home.
3. When your home is the subject of an accepted offer, make an offer on a new home that meets your needs in order to buy it.

The only time a promise to purchase with the condition of selling the buyer’s first house is a good idea is when the buyer’s first home already has an accepted promise to purchase and a short due diligence period. This reduces the risk to the seller. Know, however, that if the buyer is offering a promise to purchase with the condition of having to sell their house, they must make the offer high enough to entice the seller.

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