The Ottawa real estate market is hot, hot, hot. We are wayyy down on inventory. Sellers are afraid to list in case they can’t find a home they love. They’re also worried that they can’t afford to carry two homes if they buy before they sell. This is completely reasonable. It’s harder to find a home you love than it is to sell in a seller’s market. The low inventory that means your home will sell quickly also makes it hard to find something. And if you can’t afford to buy until you sell, you could be trapped. When a market is this hot, you can’t ask a seller to agree to a clause that allows you to sell your home before you finalize your purchase (a right of first refusal) as they won’t do it. It would tie up their property in a market where they can get a quick sale.
What’s the solution?
Luckily, there are a few! You can put an offer in on your dream home with a long closing date, and as long as your property is listed soon and is priced right, you shouldn’t have any problems selling. Is there a risk? Yes. It’s possible that your home won’t sell; this hot Ottawa market may cool down quickly if there’s a trade war or an election call, and both appear to be looming. If you’re risk-averse, like I am, you may not want to take that chance.
Here’s the strategy I used instead. I put a HELOC on my home. That’s a Home Equity secured Line of Credit, with interest only payments. You can borrow up to 65% of the value of your home, provided you meet the banks’ criteria for borrowing and have enough equity in your home to make it worthwhile.
The HELOC gives me access to enough cash to be able to buy something I like before I have to sell: I like to renovate, so I can go ahead and buy, and do whatever work needs to be done before moving in, with interest only payments. Once I’m ready to move in, I can do that, and then stage my current home for sale. I won’t be living in it anymore so it will be easy to stage and my dog and cat will be in the new home, so I won’t have to stress out about them either.
The costs of a HELOC were only $505 in legal fees, including taxes, as my mortgage broker, Robyn Oliverio, paid for the appraisal. That money is accessible as long as I own this home, and I pay nothing else unless or until I draw on it.
What if the HELOC isn’t big enough for the home you want to buy? Well, even with a HELOC, you can still take out a conventional mortgage on the new house. You might be stuck with a mortgage for a year, or you might be able to take out a mortgage that is fully open at a higher interest rate. For myself, I’ll cross that bridge when I come to it.
If you don’t want to pay interest, or can’t afford it, that’s fair too. In those circumstances, you really don’t have an option but to sell first and either get bridge financing to cover the new property, or sell, get your money from closing, and find a place to stay until you find your dream home.
The good news is that once you have a firm deal on your home, you qualify for bridge financing to carry your new property without any of the mortgage stress test rules applying, so that part is a lot easier.
The only risk in buying a home based on the sale of your current one is if the sale of your house doesn’t close because the buyer fails to advance funds on the day of closing. We are seeing more of that, because buyers are putting in offers without financing clauses and then finding out they don’t qualify. There are things we can do, like requiring buyers to be pre-approved, to minimize that kind of problem.
Although these days, to be honest, I almost prefer to have my sellers accept an offer that has a financing condition in it than a clean one without a financing condition, because then we’ll know quickly if they have financing approvals or not, instead of finding out on the day of closing that things have gone south.
The good news, though, is that there are plenty of qualified buyers out there anxiously looking for their dream homes, and if your home is properly presented and priced, and has to go back on the market because of a collapsed deal, it shouldn’t have any problem selling. I’ve had that situation twice in the last two years; luckily, I was able to re-list and re-sell both properties quickly.
So, there are strategies for dealing with a hot seller’s market AND finding your dream home: talk to your realtor.