Selling Before Buying: Genius New Trend For 2022?

Business

10 minute read

March 14, 2022

Part of me wanted to play off the old, “what came first, the chicken or the egg?” riddle, but the more I thought about it, the more I realized the analogy isn’t that apt.

The whole point of the chicken-and-egg riddle is that the argument is always going to be split 50/50, unless you happen to be conducting this poll at the University of Guelph in a room full of animal science graduate students…

If 99% of respondents yelled, “chicken,” or “egg,” for that matter, then the riddle wouldn’t be very much fun.

And if we try to extend the “chicken and egg” riddle to “buy-first or sell-first,” that’s likely where we’d end up.

I started selling real estate in 2004.  Can you guess the year in which I first worked with a client who was selling before buying?

Any guesses?

Anybody read this in a previous blog post?

2014.

It was an odd experience even though it shouldn’t have been.  And if somebody on the other side of the world in a completely different market is reading this right now, they’re probably confused.

“How can you go buy a property when you haven’t even sold yours yet?”

That’s what a lot of folks would ask, especially those in different markets.

There are fears at play here, notably the following:

1) How do you know what you can spend on a new house if you haven’t sold yours yet?

2) What if you sell your house for way less than you thought you would?

3) What if you can’t sell your house at all?

Anybody in the GTA who’s reading those three fears above will likely let them fade away quicker than your first girlfriend’s promise to always love you…

And the third fear on the list is one that makes zero sense, unless you’re listening to Toronto radio ads about “unlucky” couples who had their house listed on the market for THREE YEARS without any success!  Wow!  Who knew Toronto was home to such a terrible real estate market, right???

For those of us fully immersed in the Toronto real estate market, the three fears above never enter our minds.  And the irony is: the most realistic fear is that you sell for less than you anticipated, but in the last few years, I’ve almost always seen sellers get far more than they budgeted for.  Perhaps that’s because they were conservative in their budgeting and forecasting, or perhaps that’s because the market was red-hot.  Maybe a little bit of both.

In any event, most home-owners looking to transact in Toronto have absolutely zero “fear” of buying before selling because we’ve always been in a seller’s market, and there’s no fear that a person who bought first and then needs to sell is somehow going to get stuck.

I might also add that because it’s usually tougher to buy than to sell, or at least it there’s less certainty on timing and can take longer, most people choose to buy first.

Consider that if you started your property search on January 1st, you might buy on January 17th.  However, you might take three weeks to find a home you love, then submit an offer, and lose.  Then lose four more times over the course of the next three months, as inventory is low, you have particular needs/wants in mind, and you’re suffering from what most buyers call “bad luck.”  You finally buy a home after Victoria Day, just getting in under the five-month mark.

So what if you sold first?

What if, instead of starting your property search on January 1st, you started your sale-prep?  Then what if you sold on January 17th with a 60-day closing, and you had a deadline of homelessness set for March 19th?

That is why most people buy before selling.  There’s an inherent uncertainty in the process that doesn’t sit well with home-owners, and it’s not the uncertainty of whether they can sell their home, or for how much, but rather if they can find a house, submit an offer, successfully purchase and close on the property, all before they are forced out of their existing home based on an earlier sale.

As a result, almost all of our clients buy and then sell.

However, this has started to change in 2022 and it’s not just a fad.  It’s not simply that one couple, or that one interesting guy that have decided to buck the trend in a given year, but rather we currently have three home-owners who are all selling before buying, and it’s only March.  That tells me this isn’t just a one-off, like in previous years.  That tells me this is a trend and not a fad.

Let’s look at our three sets of clients and how they decided on this path…

Mark and Jane live in a condo townhouse but wanted a bigger, better, newer condo townhouse, and one that isn’t facing a soon-to-be construction site that will feature the sweet-sweet sound of jackhammering and trucks beeping for the next half-decade.

Their complex is unique; only 27 units.  More unique is that nothing has sold in this complex for almost two years!

How do you price a property when there are no comparable sales?  More on that later…

Mark and Jane started their search January 1st, like, literally 12:00am, they were raring to go.

We had one neighbourhood in mind, and while there’s a lot of properties in this area that fit the bill of what they’re looking for, in early-January, not much was for sale.

The first property we saw was almost-perfect, but not worth jumping on.  The problem here was, it sold for about 10% more than a similar property sold for just before Christmas!

I’m turning back the clocks a little bit now, for those of you who have read TRB all through 2022, you can recall how surprised we were by the market in early-January, and into February when we were looking at 20% gains in some pockets in 2-3 months.

Well, that’s exactly where Mark and Jane were looking!

And by the time we saw a townhouse for which a “comparable” had sold for $1,400,000 in November, selling for almost $1,700,000, it seemed like something had to give.

Mark and Jane had a $1,500,000 budget and they just weren’t getting anywhere.

On the flip side, they had a townhouse that was going to sell for an indeterminate price.

We were working with a $1,100,000 projection, but that could have been high.  Or low.  Or high.  We really didn’t know…

They bought their condo for $926,500 in 2018 (through another agent), and based on the market appreciation since then, they should have been way beyond $1.1M!

But the problem was: there was no comparable sale in 2018 to justify that price, and a much larger townhouse sold one year later for a mere $765,000.  Two more units, both larger, sold in 2020 for $890,000 each.

So how could I justify $1,100,000?

It was a “gut feeling.”

And based on last Wednesday’s blog post about pricing, including how our “gut” plays into it, you’re just going to have to trust me.

There are two sides to every coin, right?

So let’s say there are no comparable sales in the past 1.5 years.

We can look at this two ways:

1) “There are no comparable sales to say this property is worth $1,100,000.”
2) “There are no comparable sales to say this property is not worth $1,100,000.”

So when my clients and I first discussed pricing and strategy, I explained the above, and told them I would be taking the viewpoint of quote #2.

We are in a seller’s market.  So if and when a buyer agent wants to argue against a particular price, I can simply advise, “Hey, I hear you, but I’ve had 87 showings on this property, fifteen agents have asked about pre-emptive offers, so if you want to use comparable sales from two years ago, I don’t think it’s going to help.”

Regardless, Mark and Jane were still dealing with a massive unknown in terms of the potential sale price for their home, and it’s one thing for me to tell them what they could get, but it’s another thing altogether for me to show them.

So by the time we had lost a few offers on these new-build townhouses and seen prices skyrocket, Mark and Jane had an idea: they wanted to time the market.

Oh boy!

Timing the market?  Nobody does that!  It never works!

They decided to sell first, obtain a long closing, and then wait until spring for more inventory to hit the market and prices to stabilize.

(gulp!)

I took a very diplomatic approach to this and explained the pros and cons, and they fully understood and were willing to take on the risk.

So away we went!

We spent two weeks preparing the property for sale, listed, had over 70 showings, and 11 offers.

Did we get our $1,100,000?

Nope.

We got $1,370,700.

So now, please feel free to say, “David, you can’t price a property for sh!t,” and I’ll take your point as fair in this case.

I’d like to pat myself on the back for this one, however, as I spent a full week cultivating these agents and setting the table for this sale.  The staging, marketing, and sale process we implement with every one of our listings is not something typically done in this market, and it really, really pushed the price up here.

But this was such a rare case where a unique property in a small 27-unit complex had no sales for 1.5 years!  There was no way of knowing what this property could sell for, and no way for Mark and Jane to make an informed purchase decision on their new townhouse if they didn’t know what they’d get for their old one.

Now, they have $270,000 more than they thought, and a closing date just before the calendar turns to summer.  In the past week, we’ve already seen inventory increase in their search grid, and a few properties have been re-listed after failed offer nights.  So I won’t count their chickens just yet, but it feels like by April or May, we’ll be saying, “Well played.”

Another client of ours is looking to sell here in Toronto and move to Orillia.  Or Midland.  Or maybe Gravenurst?  Or how about Bracebridge?  So pretty this time of year!

Alright, so they still have some things to iron out, but they had intended to buy and then sell.  That was the plan all along.

In February, they were all hot and bothered by this one house, that they hadn’t seen yet, so we put the wheels in motion for the listing of their existing home, assuming they were going to purchase this home up in Orillia on the scheduled offer night.  We booked our painter, cleaner, stager, and photographer, and put a timeline together.

But that house wasn’t “the one.”  So we canceled our painter, cleaner, stager, and photographer, and waited for the next house to hit the market.

A week later, an even better candidate hit the market, and this one they did see, did love, and did label “the one.”

So again, we put the wheels in motion for the sale, assuming we’d need to get started very quickly, on account of the sellers of this house up north wanting a quicker closing.

But with a dozen offers on this little ramshackle 200 KM north of the city, our clients stood no chance.  They were working with our colleague who works in Bosley’s Thornbury office and he said the sale price was just absurd!  Completely detached from anything resembling reality.

Welcome to real estate in Toronto…..er……Midland.

Now, having been through this process twice, and having prepared to list their existing home twice, our clients simply said, “Screw it.  Let’s move forward with the sale.”

They too feel that maybe, just maybe, they’ll take advantage of a Toronto market that’s dying for inventory, secure a longer closing date, and have flexibility with the purchase.  They have a place in Port Severn that they can live in for a while if they sell and close the Toronto home before buying up north, so they’ve found a solution to the potential homelessness that scares away so many would-be-sellers.

And just like the first couple, they too would love to know how much they’ve sold their existing home for so that they can, potentially, stretch on the purchase up north.

They’re looking at selling here for around $1,100,000 and buying up north for $700,000, with money in the bank and money for a renovation.

When a home-owner who bought first ends up selling for slightly more money than they expected, they usually just make a larger down payment.  But in our clients’ case, more money on the sale might mean buying a larger home or a home that needs a much larger renovation.

Of course, this could be said for any home-owner who elects to sell first, and not just our clients described above.

I’ve got another set of clients who are selling first because they need to know exactly how much they’ve got in order to know what they can purchase.

This is the case for every buyer but to a different extent, and that’s often based on their desire for debt or their affordability.

Two buyers, both sitting on condos worth approximately $800,000, both looking to sell and buy houses, could have completely different reasons for “needing” to know their sale price before buying.

The first buyer could have $400,000 worth of equity in that condo, net of an $800,000 sale, and could be using that $400,000 as a 20% down payment on a $2,000,000 purchase.  For them, every additional dollar over the projected $1,000,000 sale price could get them $5 higher on the purchase price of the new house.

The second buyer could own that $800,000 condo in cash and be looking to move to a warm, welcoming, friendly area in The Yukon, by purchasing for $400,000, and then buying the house next door for $400,000 as well, just to have room to store extra Canada Goose jackets in the summer.

Additional sale proceeds will obviously benefit every seller, but not necessarily in the same way.

So back to this third set of clients, who are not just selling before buying, but rather selling two properties before buying.

Two condos, both downtown, one 2-bed, 2-bath, and one 1-bed, 1-bath.

Why are they selling both first?

Because their target purchase price is going to be the exact amount of the combined sale price of the two condos.

This doesn’t mean both are owned with no debt, but rather the sale proceeds from two condos, net of fees, will allow them to purchase a home (after land transfer tax) at an amount equal to the combined sale price of both properties.

Call it a coincidence, which it is.

But that’s just how their numbers worked out.  Based on the equity they have in both condos, and their combined incomes, their mortgage qualification is such that they can purchase for $1,400,000 if they sell one condo for $800,000 and the other for $600,000.  Or, they can afford $1,300,000 if they sell one condo for $850,000 and the other for $450,000.

Sure, we could estimate the value of both condos and they could buy before selling.

But the areas in which they’re looking, combined with the property types that interest them, mean there’s a massive jump from $1,300,000 to $1,400,000.

At $1,300,000, they’re looking at a townhouse, often a condominium, or at least a POTL (parcel of tied land).

At $1,400,000, they have a shot at getting into a freehold.  Perhaps a semi-detached.

And when our conversations began in January, they were quite set on a $1.2-$1.3M townhouse, perhaps on the outset of the city.

So what happens if the market responds extremely well to both condos?

Then they can afford to purchase a much bigger, much better, and/or a much more centrally located home.

It took me ten years to work with a client who wanted to sell before buying.

After that, it took another four years for me to experience it again.

From 2020 through the end of 2021, I only had one client sell before buying, and they were moving out-of-province, with no pressure on the buy-side.

So here we are, March of 2022, and I’m currently working with not one, not two, but three clients who are employing the “sell first” strategy.

Coincidence?  Fad?  Trend?

And if it’s the latter, then what does that say about our market today and moving forward?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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8 Comments

  1. Marty

    at 12:28 pm

    If I could save/make even $25,000+, I’d move to a hotel for weeks or months even, between sell/buy. But that’s just me.

  2. Bob

    at 2:48 pm

    I recently just sold and will watch market closely the next 6 weeks. I’m fully prepared to rent it out if it means come this fall or next year the market becomes more balanced. Thankfully I have two kids and a wife who are super understanding but I would imagine that’s more the exception than the rule.

    Note the decision to sell first was highly influenced by the last time when I bought first and then the market slowed severely that I couldn’t unload my own property. Don’t wish that kinda stress on anyone!

  3. Francesca

    at 2:50 pm

    We sold first and bought later in the fall of 2020. We wanted to know exactly how much we would get for our house before buying a new one. We did have the back up of moving in with my parents but luckily we had a long closing with our buyer and a short closing with our seller so we were lucky that we didn’t have to utilize the back up plan.

  4. Condodweller

    at 2:51 pm

    David, I wonder if your valuation of 1.1 mil was accurate and the $270k was the premium to win? This would sort of prove that the current increases are not justified. Are we looking at a similar situation to 2017? IIRC people were paying up to 300k in premiums back then. $270k is almost there.

    Late afternoon with only one comment. I guess the permabulls are digesting this news and it’s taking longer than usual to come up with reasons why it ain’t so.

  5. Paul

    at 3:14 pm

    Over the weekend I spoke with two different friends who have very recently purchased homes. One in Vancouver and one in the GTA. Both said they had been trying to purchase recently and failed in multiple offer situations. Both also said that for some reason, there were far fewer bidders on the properties they just purchased and that both sold for less than the asking price. Is it possible that the conflict in Ukraine or the interest rate increase has put a chill in the market? Might this also be a factor in people deciding to sell before buying? Perhaps some sellers are looking for some certainty that they actually will sell for a price that allows them to afford their intended purchase.

  6. M

    at 8:34 pm

    David, would appreciate your thoughts on the concept (not if the agents are any good) of Properly? Seems interesting, but perhaps it’s just a fancy way of showing how bridge financing works? Thanks.

  7. johnny chase

    at 4:17 pm

    I got stuck with 2 homes during the 2008 financial crisis because we bought first, and then listed for sale once the market turned. We sold 2 months later for $150K less than what we were told by our agents listing agent for our property.

    In 2018, when it was time to move, I insisted on selling first then buying. And thank goodness. It took 3 months to sell and we held firm on our price. If we bought first, I would have been under pressure to sell and probably taken one of the first lowball offers I received. I think I got my $150K back.

    Then there was nothing to buy so we ended up renting. Signed a 1 year lease on a $6K / month house and negotiated a great purchase of over $300K off a leaside detached in a slow market. Again, with no pressure to buy, I think it worked out for the best. I sublet the rental with 6 months to go on the lease and everything worked out great.

    There is no worse bargaining position you can be in than needing to sell to finance your new purchase. In a slow market the agents smell blood.

    I’ll never buy before selling again.

  8. Go1Mr

    at 8:48 am

    Very useful trend I should give it a shot.

Pick5 is a weekly series comparing and analyzing five residential properties based on price, style, location, and neighbourhood.

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