Is it a Good Idea to Buy a Home Before I Sell Mine in Calgary, Alberta?
Whether or not to buy a home before selling your current home is the Catch 22 in real estate. When you do so, you’re taking a risk in that, depending on the market condition. Generally, it’s not advisable to do so, but if you’re in a rising market, it takes away some of the risk. However, if you’re in a declining market, don’t do it, unless you have lot’s of equity in your home.
It’s important to select a REALTOR® that understands market conditions, because that is the main factor that will influence your decision. Even in a balanced market, one that isn’t rising or declining and is sitting fairly constant, it’s bad advice to buy a home before selling yours.
Our average possession in Calgary range somewhere between 45 and 60 days, so that’s how much time you have to find a buyer and get your money out of your home so you can close on a new one.
When you buy a home before you sell yours, you run the risk of carrying two mortgages unless your bank has approved you for two. If your bank had said, “You know what? You guys make enough money. If your home doesn’t sell, you can carry two,” you still have a decision to make. Even if you can carry two, how long would you want to do that?
If you’re building a home, the possession in Calgary is seven to eight months. So if you’re building a home in Calgary, you have some real tough decisions to make. If you only want to move once, you’re pretty much forced into buying a home without selling because if you just wanted to sell your home now and you purchase the new one that you’re having built and the possession is seven or eight months out, your chances are very slim of finding a buyer that is going to give you a seven or eight months’ possession.
Therefore, you’re basically stuck dealing with a 90 or a 120-day possession and running the risk of the market doing whatever it’s going to do in the time you were waiting. The market could go up and work to your advantage. Or it could go down. In that situation, the right thing to do depends on your risk tolerance. If you’re a high risk person, you’re OK. If you’re a medium-risk person, you’ve got some additional thought. If you’re an absolute low-risk tolerant individual, you’re going to sell your home and you’re going to make two moves.
As a low risk person, you’ll sell your home and then rent, or move in with family or friends until your new home is ready. Depending on the rental market, most landlords will accept a six-month lease agreement. Obviously, when the rental market is weak, that’s a lot easier to do. This is again an instance where a REALTOR® with experience should be brought in so that you can receive proper guidance.
I wouldn’t recommend buying a home before selling your home in a normal market, unless you have lots of equity. The way to get around it is for the offer to be conditional to the home selling and see if the seller will take that.
The Guarantee Sale Program
A Guarantee Sale program guarantees the sale of the buyer’s existing home. The guarantee states that if their home doesn’t sell, the guarantor will buy it. This guarantee totally wipes out the Catch 22. However, the guarantee usually only runs about 90 – 120 days out from the possession of the new home. Anything longer increases the risk to the guarantor.
This program has a lot of detail, and people need to call Tom directly in order to discuss it and understand it fully.