Mark Weisleder, an Ontario-based real estate lawyer, has a cautionary tale about what can happen when clients don’t follow his advice.
Earlier this year a couple that he was working with was trying to sell their home and buy a new one. But rather than securing what is called “bridge financing” and closing the purchase first, as Weisleder advised them to do, they tried to close both deals on the same day.
It was around 1 p.m. on the Friday before a long weekend when Weisleder received a panicked phone call from his clients. They had arrived at the new home with all of their stuff loaded onto a moving truck and they wanted the keys.
But Weisleder didn’t have the keys. He couldn’t get them until after the deal had closed – meaning the money for the purchase had been delivered to the seller’s lawyer. And at the moment Weisleder didn’t have the money, which was supposed to come from the sale of his clients’ home, because the couple who was buying it were having some difficulties.
In the end, the buyers got the money to Weisleder just five minutes before the 6 p.m. cutoff and the sale closed. But Weisleder’s clients weren’t able to get the keys to their new place until the next business day.
“At five minutes to six there was not enough time for me to turn around and get the money to the seller’s lawyer, so I couldn’t close the (purchase) deal,” Weisleder says.
His clients had to spend the long weekend in a hotel and pay the moving company to put their stuff into storage for several days.
The Buy or Sell Dilemma
Cases like this are an extreme example, but they illustrate what can go wrong if you don’t do things in the correct order. In competitive markets like the Toronto real estate market, people looking to upgrade their home often face this dilemma: Should they buy first, or sell first? In the Vancouver real estate market, where prices are soaring rapidly, homeowners who sell their home before buying a new one risk being priced out of the market.
“A lot of people think you should buy and sell on the same day, which is not a good idea,” Weisleder says.
“Because if the person you’re selling to can’t close the deal, you don’t have money to close your purchase and you’re in default. It’s a disaster.”
Explore Bridge Financing Options
Weisleder recommends setting your sale date for about a week after your purchase. But first, check with your bank to make sure they’ll give you bridge financing – a loan that temporarily covers the portion of your purchase that is going to be funded by the sale of your home.
“It might cost you a couple hundred dollars in interest, but that way your purchase closes as scheduled, you move in slowly and then you close your sale.”
That gives you some time to fix up your new house before you have to move in, he adds.
If your buyer falls through you’ll have to keep paying interest on the bridge loan until you secure another buyer, but at least you didn’t default on your purchase, Weisleder says.
“You’ll find another buyer and all you’re going to be out is that extra interest.”
