You already own your house, but you have a need to move. Perhaps your family is growing and you need more space. Perhaps you have retired, and you need less space. Perhaps you were relocated for work. Now what do you do? Most people will hire a real estate agent to find another house. There are many people who believe, as do many agents who confirm to them, that buying and selling houses on the same day is an efficient way to complete a transaction. The lawyers at Merovitz Potechin LLP, disagree.
Three Reasons Why
The idea is fraught with danger. Here are 3 reasons why:
- Your purchase will rely on funds from the sale of your existing home being completed. What happens if the purchaser defaults on the day of closing, or seeks an extension because financing is delayed? Now you will be in default of your purchase because you don’t have the money from your sale. Either you have to quickly get cash to close your purchase, or ask for an extension yourself.
- Your purchase will rely on funds from the sale of your existing home being completed EARLY on the day of closing. The purchaser of your existing home has until 4:59pm to close the transaction. Although I am excellent at completing a purchase, I do need more time than a minute to complete your purchase once the sale occurs. Now, you need to ask for an extension of the sale. Your home is gone, but you have not closed the purchase. Where are you planning to sleep? If you cannot get an extension, you are in default in completing your purchase! The Vendor may choose to terminate the transaction and sue you for damages. Occasionally a property value may decrease.
- In both 1 and 2 above I note that you will need to seek an extension on your purchase. What happens if the value of the property has increased since you bought the property? Now, the Seller is in a position to deny you the extension request, tender, and keep your deposits. Then the Seller can remarket the property and sell it to another buyer for more than you paid. How can the seller do that? According to s. 20 of the Agreement of Purchase and Sale used in virtually every residential real estate transaction in Ontario, is a clause that states that “Time is of the Essence”. That means, that you must complete your transaction on time. You do not get to unilaterally choose to do it the next day. At 5:00pm, you are in default.
So what do I recommend? Here are a few options:
- Sell first, then Buy. I recommend a few days, to be certain that the sale of your home is completed, but even a 1 day difference is better than none. This gives you the flexibility to extend your sale and not need to ask for an extension yourself. The longer the time, the safer you are. I have had clients arrange for alternative accommodations in fully furnished short term rentals and have their belongings put in a moving and storage facility. Think of it as a staycation. Just pack a suitcase for what you really need.
- Buy first, then sell. To do this, you will likely need to have bridge financing. The cost of bridge financing is often relatively low. This gives you the opportunity to own both houses for a short period of time, which can be nice if you are moving within the same city. Now you can move your furniture and belongings more slowly. Remember, if your movers load your belongings into a moving truck early in the morning and you do not get the keys to the new house until after 5:00pm (or even the next day) the moving company will charge an hourly rate to hold your belongings. That may be more expensive than bridge financing.
- Sell first, and rent (and buy later). A lot of people will sell their home and then end up in a position where they “have to buy”! This causes people to buy homes that may not be right for them. You should take your time when buying a house and ensure it is the right home for you. If you are rushed, or stressed about being homeless, you may accept shortcomings in a home or otherwise buy when something is not just right. Selling your home first, and then renting in a short term rental is a relatively inexpensive way to test out a neighbourhood, and give yourself the time to properly find the right house for you. Now you can buy a house with reduced stress and pressure.
How we can help
Buying and selling houses should be a positive experience. Buying and selling on the same day, however, can make your life very stressful. Avoid the stress! If you are going to be buying and selling, and would like to speak to a Real Estate Lawyer about how to best protect yourself from liability, and to complete the transactions on your behalf, contact Noah Potechin at Merovitz Potechin LLP.