Buy first or sell first when you downsize in Ontario

The two orders at a glance

Run the arithmetic for either order with the net proceeds calculator, then read estimating net proceeds for the costs on each side.

Conditional offers and sale-of-property conditions

If you buy first, one way to lower the risk is to make your offer conditional on selling your current home. A condition is a term written into the agreement of purchase and sale, so the details depend on its wording: how long it runs, what happens if the seller receives another offer and what you must do to remove it. Your agent and lawyer should draft and explain it before you sign.

The trade-off is simple. A seller may prefer an offer with no sale condition, and in a market with several offers yours may be weaker. If you sell first, you avoid the issue, but a buyer's own conditions can affect your closing. Ask your agent how conditions are being treated on homes like yours today.

The RECO Information Guide also notes that a listing agreement can include a holdover clause. Read the guide and ask what applies if you list and then take your home off the market while you buy.

Negotiating closing dates

The closing date is a term of the agreement, so it is negotiable on both sides. A downsizer often wants the same day on both closings, or a few days between them to move. A seller on the other end of your purchase has their own plans. Ask your agent to talk about dates before you set a price, not afterward.

Consider what each order needs from the calendar:

• Buying first: a longer closing on the purchase so you can list and sell
• Selling first: a longer closing on your sale so you can find a home
• Either: a plan for storage or short-term housing if the dates do not line up
• Either: a call with your lawyer about what happens if one closing slips

The moving day guide covers what to arrange once the dates are fixed.

Bridge financing: ask your lender

Bridge financing is the term for a short-term loan that covers the gap when you need money for the new home before your sale proceeds arrive. The Government of Canada's relocation directive describes it as a short-term bridge loan or line of credit that replaces sale proceeds not yet available for the replacement home. That page is written for military relocations, so treat it as a description of the idea, not a guide to what lenders offer you.

Whether you qualify, the cost, the term, the fees and what the lender needs to see, such as an unconditional sale of your current home, differ by lender. Ask your lender or mortgage professional for those terms in writing before you make an offer that depends on one. Do not assume the amount you want will be available.

Borrowing against your home with a HELOC

A home equity line of credit is another way some owners fund a purchase before they sell. The Financial Consumer Agency of Canada's page on borrowing against your home equity says:

• You can borrow up to 65 percent of your home's value with a HELOC, compared with 80 percent for a second mortgage or home equity loan
• The interest rate is variable
• Your home is the collateral, so there is a risk of losing it if you cannot pay
• Costs can include an appraisal, a title search, title insurance and legal fees

A HELOC means two sets of costs while you hold both homes: the carrying costs on each, plus interest on the line. Add those to the budget for the time you expect the overlap to last, and again for a longer overlap. For a plan that relies on borrowing, speak to a lender and an accountant. Reverse mortgages are a different product with their own rules and are covered on the FCAC's site.

The principal residence plus-one rule when you own two homes

If you buy first, you may own two homes in the same calendar year. The CRA's principal residence page says one property per family unit can be designated for each year from 1993 on. Under the "plus one" rule, when you sell one residence and buy another in the same year, both can qualify for that year even though only one is designated.

You still have to report the sale on your return, using Schedule 3 and Form T2091(IND), even when no tax is owing. The page also says a housing unit held for fewer than 365 consecutive days can be taxed as business income unless the sale follows certain life events. If your overlap spans a year end or you are keeping the old home for any length of time, ask an accountant before you decide.

Land transfer tax: when it is due

Ontario's land transfer tax page says you pay when you acquire land and the transaction closes. So the tax is part of your purchase closing, and sellers pay none on a sale. The bands are on the Ontario calculation page. Worked examples at those bands are $4,475 on a $400,000 purchase, $8,475 on $600,000 and $14,475 on $900,000.

Buying first means that cash is needed on the day your purchase closes, before your sale proceeds exist if the sale is later. Add it to the figure you give your lender or lawyer. Selling first means the proceeds are in hand when the purchase closes. Our calculator shows the purchase tax next to your sale net.

Condos and new builds: status certificates and Tarion

A resale condominium

For a resale unit, the status certificate sets out the corporation's governing documents, financial statements, reserve fund details, common expenses and arrears, special assessments and litigation. The corporation can charge up to $100 including taxes and has 10 days to provide it. Because of that 10-day delivery, a review period is something to plan into your agreement and your calendar.

Do not assume that a resale purchase comes with a statutory right to walk away. Any right to back out depends on what is written in your agreement, such as a condition for your lawyer to review the certificate. Ask your lawyer exactly how long it runs and what it lets you do. See buying a condo in Waterloo Region for what to read.

A new build

Tarion's page on the new home warranty says coverage applies to freehold homes, contract homes and condo units under seven years old built by a builder licensed by HCRA. It includes pre-possession protection for deposits and delayed closings, then one-, two- and seven-year coverage after possession. The maximum is $400,000 per freehold home and $300,000 per condo unit for agreements from July 1, 2023, and $300,000 for earlier ones.

A new build is where the order of buying and selling is hardest to control, because a builder's closing date can move. If you sell first, you may need a place to live in between. If you buy first with a date still in flux, ask your lawyer how the agreement handles delays and what Tarion's materials say. Ask the builder about HST and any rebates that apply to you.

Questions to ask before you choose

These questions turn a general trade-off into your own plan. Put each to the person who can answer it.

• Lender: can I keep my current mortgage while I buy, and what happens at renewal or payout?
• Lender: is bridge financing or a HELOC available to me, on what terms and in writing?
• Lawyer: how should a sale condition be worded, and what happens if one closing is delayed?
• Agent: how are closing dates and conditions being handled on homes like mine?
• Accountant: does owning two homes in one year change what I report on my return?
• Insurer: what cover applies to a home I own but do not yet live in, or no longer live in?

The last question is easy to forget. A home that sits empty can have different insurance conditions, so ask before the overlap begins. The insurance guide covers the main points.

How to decide

Start with three questions. How long could you carry two homes? What would a gap of a few weeks cost you? And how much flexibility do you want on the next home? A comfortable cash cushion makes buying first easier, while a plan to move in with family or rent briefly makes selling first less stressful.

Whichever order you choose, write the plan down: the closing dates, what you will do if one slips, who pays what and when. The downsizing guide sets out the sequence, costs and taxes covers the budget, and where to downsize helps with the choice of place.

If you would like to talk it through, you can ask for an introduction to an agent on the operating team at eXp Realty. That is not a search of the whole market, and the agent, not this site, does the work on your sale and purchase.