Selling Before Buying in Ontario: Which First?

Selling first: the pros and cons

When you sell first, your sale price is known before you shop, so you know your real budget. You will never be stuck paying for two homes, and a buyer sees you as a strong purchaser because your offer does not depend on selling anything.

The downside is timing. If you have not found your next home by your closing date, you may need to rent or stay with family for a while, and move twice. You can reduce this risk by asking for a longer or flexible closing date when you sell.

Buying first: the pros and cons

Buying first lets you take your time finding the right home and move only once. It can make sense when homes like the one you want are scarce, or when you are confident your current home will sell quickly for a price you can predict.

The risk is that your sale takes longer or brings less than you counted on. You may then have to carry two mortgages, two sets of property tax and utilities, or lower your price to sell in time. Your lender will also look at whether you can qualify while you still own your current home.

Offers conditional on the sale of your home

One middle path is to make an offer to buy that is conditional on the sale of your current home. The purchase only goes ahead if your home sells by a set date. Sellers are often cautious about these offers because their home is tied up while they wait, so they may be less willing to accept one when they have other interest.

These offers often include an escape clause. In general terms, the seller can keep marketing their home; if they get another acceptable offer, they give you notice and a short time to remove your sale condition or step aside. The exact wording and time limits are negotiated and set in the agreement, so have your lawyer and agent explain what you are signing.

Firm vs conditional deals

A conditional deal still depends on something happening, such as financing, an inspection or the sale of a home. A firm deal is one where all conditions have been met or waived in writing. Until your sale is firm, it can still fall apart, so avoid committing to a firm purchase that relies on money from a sale that is only conditional.

Bridge financing and lining up closing dates

The simplest plan is to close your sale and your purchase on the same day, or to close the sale a few days first, so the money from one pays for the other. Your lawyer handles both closings.

If you buy first and your purchase closes before your sale, bridge financing is a short-term loan that covers the gap between the two closings. Lenders usually require a firm sale on your current home first. The amount, cost and length all depend on the lender, so ask your mortgage professional early whether it is available to you and what it would cost.

The costs of carrying two homes, or none

• Two homes: two mortgage payments, property tax, insurance, utilities and upkeep
• Bridge financing: interest and any lender fees for the gap period
• Renting in between: rent, a second move and storage
• Breaking your mortgage early: a possible prepayment penalty; ask whether your mortgage can be moved (ported) to the new home
• Buying: land transfer tax is paid by the buyer, so budget for it on the home you buy

• Calculate your net proceeds →
• See what your home might sell for →

Get legal and lending advice first

This guide is general information, not legal or lending advice. Before you sign an offer to buy or sell, speak to your real estate lawyer about the conditions and closing dates, and to your mortgage professional about financing, bridge loans and any penalties. Under TRESA, your brokerage represents you under a written agreement and can help you plan the order of the two deals.