Buy now, sell later? How the dip in real estate has made it trickier to judge the market

Denise Laframboise is a mortgage broker and a serial homebuyer. She understands why someone would buy a place before selling their existing home.

Emotionally, I want to know where I'm going and, if I don't buy what I want, I'm not moving," she said,

Less than a generation ago, it was just accepted that move-up buyers sold first and then bought a new home once they knew exactly what they had to spend. Today, Toronto area realtors say most people buy first and list later.

That is because stiff competition for housing pretty much assures a sale and home sellers know they risk not getting a new place if they wait to buy until after they sell.

But a recent cooling in the market could make some of those assumptions a little trickier.

Realosophy president John Pasalis stresses Toronto is still a strong seller's market and few homeowners need to fear their place won't sell if they buy first. However, a slight dip in real estate in recent weeks means some buyers may want to carefully consider the nuances of buying or selling first.

Those are owners whose homes won't necessarily be the first on their block to sell. If you've got a home that, because of design, layout or its condition, isn't going to get as many offers as neighbouring properties, you might want to reconsider, said Pasalis.

We're starting to see more failed offer nights and you need to be cautious with both the combination of the home and the neighbourhood because certain neighbourhoods may be seeing more of that type of behaviour," he said. That's going to impact you when it comes time to list and sell."

The only way to mitigate that if you want to buy is to get a very, very long closing date, said Pasalis, and then, make sure your home is ready to list as soon as you buy. You can't spend four weeks painting and prepping. You're burning valuable time."

Today, rising interest rates may be rattling some consumers, says Lorry Greenspan of Forest Hill Real Estate, but, Now, more than ever, I would buy before I sell."

I still think it would be a smarter process to buy first because if you sell, you may not actually be able to buy something," he said.

We're still seeing those extremely hot properties that get many, many showings selling for (high) prices and selling quickly. I'm getting emails every single day on properties that I've shown that have received a pre-emptive offer. Those are on properties that don't really have too many flaws - the perfect property at the perfect price point," he said.

But Greenspan agrees that with more listings on the market, there is less competition for homes with flaws that buyers might have overlooked amid more heated competition.

Adam Gurza and his wife bought their first home, a stacked townhouse near Dufferin Street and Eglinton Avenue, in June 2020. But he's already thinking ahead to when they will buy a place with fewer stairs and more yard.

In the current climate, Gurza, 30, says he wouldn't hesitate to buy before they sell, although if the market drops they might be more conservative in what they buy.

The way the market is and the demand at the price point we're at, is beneficial and I definitely would be willing to do it," he said.

Lots of people I know bought before they sold. It just adds a little bit of pressure," said Gurza.

Laframboise cautions that, mathematically, it's actually a lot more complicated," than buying a first home and many buyers aren't aware that the financing is more complex if you've got two properties in play.

Somebody says, I want to sell and I want to move but my lender said my mortgage is portable so don't worry about it.'

OK," she says. But do you need the same amount of mortgage? Do you need more mortgage? Do you qualify? Did you take CERB? Did you change jobs? Did you have time off for COVID."

Many people she meets don't know that bridge financing depends on the sales being firm on both ends - the house the seller is leaving and the home they're buying. So you can't use bridge financing to move into your new place, stage your old home and sell it later, she said.

Instead of having the stress of lining up the amounts and the dates for bridge financing, Laframboise recommends downsizers put a line of credit on their house so they can buy something for cash without worrying about competing offers and appraisal values.

She suggests that sellers looking to buy first, who worry about real estate market fluctuations, calculate the most they can afford to pay for their next house if they only get the lowest amount they can accept for their current home.

Laframboise knows this from experience.

In 2013, she and her husband bought a home in Durham Region before selling their York Region home. At the time there was nothing else for sale in their area. No sooner had they purchased, then for-sale signs sprang up across their neighbourhood.

We ended up having to drop the price and drop our price and drop the price," she says. I kept thinking, OK, I have to remember that I got the house I'm buying for less than what I'm selling for. I have to not be greedy about this."

In most cases, she said, GTA sellers can afford to buy before listing their house.

We know we can drop our price enough that it will sell. Somebody will buy it." That's not always true further from the city, she said.

Many consumers have only experienced the Toronto real estate market on an incline, says Pasalis. To believe it could be otherwise, they would perhaps have to be risk averse or understand that the housing market can turn on a dime, maybe have experienced the crash in the 1990s or the correction in 2017.

But most people won't remember those events because they don't engage in real estate very often, he said.

Greenspan expects the demand for GTA homes will exceed the supply for the foreseeable future but sellers have to guard against their own expectations of what their home will fetch.

People sometimes extend themselves too drastically," he said. Better to be able to add equity into your property than borrow more."

Tess Kalinowski is a Toronto-based reporter covering real estate for the Star. Follow her on Twitter: @tesskalinowski