Buying and Selling on the same day-Beware

In this week's blog, we are going to discuss an issue facing many homeowners when purchasing a residential property.

As is usually the case (for people who are not first-time home buyers) you have to sell your existing home in order to have the funds needed to purchase the new property. Time and time again, I see clients arranging for the closing of both their existing home and their new home on the same day. 

The difficulty with closing both transactions on the same day is one of timing. Both deals must be completed by 5 PM on the closing date and there is no specific time set for the closing of either deal. If the sale of your home takes place late in the day, this makes the possibility of completing the purchase of the new property by 5 pm unlikely. This is due to the logistics involved in closing a real estate transaction. Let me shed some light on the subject for you.

Once the sale proceeds arrive in my office and we complete the sale transaction, the funds need to be deposited into the trust account, cheques need to be certified and delivered to the seller's lawyer. If that office is quite a distance away from mine then it is unclear precisely when the funds will arrive at the other law firm, even if I send it on a rush basis. Sometimes, the seller’s lawyers will allow the funds to be deposited directly into their bank account (to save the time of a courier) but what if their bank closes before the deal is ready to close? Many banks still close at 4 pm.

If the purchase transaction doesn’t close in time, what is the client to do? For the moment, they are homeless. Sometimes, I am able to negotiate that my client be given possession of the new property (notwithstanding that the deal hasn't formally closed) but this is a rarity. The client is then left to find themselves accommodations for the night. This frequently involves staying in a hotel, meals in restaurants and additional storage charges by the moving company as the client's personal effects and furniture need to be stored overnight. They may even have to buy a change of clothes and toiletries because all of their belongings are packed away in the moving truck!

To avoid this situation, if possible, arrange for the closing date for the purchase transaction to take place a day or two before the closing of the sale transaction and obtain bridge financing for the down payment, land transfer tax and closing costs. In my experience, clients who use this strategy are usually able to complete the purchase of the new home relatively early in the day. This also reduces their moving costs as the movers are not sitting around all day waiting for the deal to close, accumulating hourly moving charges. Depending on your lender, the bridge financing costs can be minor in comparison to the stress and aggravation of waiting all day to take possession of your new home.

So heed a piece of simple device: When you are arranging for closing dates, do not fall into the trap of buying your new home and selling your existing home on the same day. It will likely save you hundreds of dollars in moving charges and save you a lot of aggravation and stress.