When moving, compare the gap between prices
THE HOME GUIDE · 20
When moving, the difference matters more than you think
Your home might sell for less than you hoped. But what if the home you want has become even more affordable?
ABOUT 7 MINUTES TO READ
THE NUMBER MOST PEOPLE MISS
The home you want to buy
$1,200,000
Minus your home's sale price
− $750,000
THE PRICE GAP
$450,000
Illustrative prices. The price gap does not include mortgage debt or moving costs.
Most people focus on one number when selling their home: the price they hope to receive.
It's understandable. Your home may be your largest asset, and a lower sale price can feel like a loss.
But if you're selling to buy another home, you are part of two transactions. The market affects both.
The price of your next home deserves just as much attention as the price of the one you're leaving.
01 / THE BIG IDEA
A falling market can change both sides of your move.
Suppose your home would have sold for $800,000, and the larger home you wanted cost $1.3 million.
The difference between the two prices was $500,000.
Now imagine both homes are worth less.
BEFORE
Sell your home for $800,000
Buy your next home for $1,300,000
AFTER
Sell your home for $750,000
Buy your next home for $1,200,000
WHAT CHANGED?
The gap narrowed by $50,000.
Your home lost $50,000 in value, but the home you want fell by $100,000. The difference needed to move up became smaller.
This example does not account for your mortgage, transaction expenses or financing.
It shows why looking at your sale price alone can give you an incomplete picture of the move.
02 / DIFFERENT HOMES, DIFFERENT MARKETS
The two homes may not rise or fall together.
A condo and a detached house can be in the same city and still face different levels of demand.
So can a semi-detached home and a large luxury property.
The number of available homes, the buyers looking for them and the price range can all be different.
If house prices fall more than condo prices, the move may become more affordable. If condos weaken more, the gap may widen instead.
A larger dollar change in detached-home prices can narrow the gap, even when both types of homes are selling for less than before.
A downsizer may benefit when the condo they want becomes less expensive relative to the house they're selling. The reverse is also possible.
Compare the specific type of home you're selling with the type you're buying, in their respective neighbourhoods. City-wide averages may hide important differences.
03 / DOWNSIZING
The same principle works when you move to something smaller.
Imagine selling a large detached home and buying a condo.
You may be interested in how much money the move could free up.
HYPOTHETICAL DOWNSIZE
Original sale and purchase prices
$1,600,000 − $1,000,000
After the two property types change in value
$1,550,000 − $900,000
The gross difference grows by $50,000, before debt and transaction costs.
But downsizing does not always work this way.
If the large home loses more value than the smaller home, the amount available from the move may shrink.
And a smaller home may have condo fees, special assessments or other ongoing expenses that affect whether downsizing actually saves money.
04 / THE FINANCIAL REALITY
The price gap is not the same as the mortgage you'll need.
This distinction is important.
When you sell a home, you normally need to pay off the mortgage and any other debt secured by the property.
You also need to account for selling expenses.
EXAMPLE / WHAT IS LEFT FROM YOUR SALE?
Sale price
$750,000Mortgage payout
− $400,000Example selling expenses
− $30,000ESTIMATED NET SALE PROCEEDS
$320,000Now suppose the next home costs $1.2 million.
If you use all $320,000 of your sale proceeds toward that purchase, the remaining amount is $880,000 before buying expenses.
COMPARE THESE NUMBERS
Price gap between the two homes
$450,000
Amount still needed for the purchase
$880,000
The second figure includes the effect of the old mortgage and selling expenses.
You may need a new mortgage, savings or both. Whether a lender will approve that mortgage is a separate question.
All figures are illustrative. Other secured debts, mortgage penalties, purchase closing costs and adjustments can change the result.
05 / THE COSTS BETWEEN THE TWO HOMES
Moving has expenses that the price gap doesn't show.
Before deciding that a smaller gap makes a move affordable, build a complete moving budget.
Real estate fees: Costs related to selling your existing property.
Land transfer taxes: Taxes that may apply when you buy, depending on your location and eligibility for exemptions or rebates.
Legal costs: Expenses for completing the sale and purchase.
Mortgage costs: Potential penalties, appraisal costs or financing fees.
Moving expenses: Transportation, storage and possible temporary housing.
Ongoing costs: Changes in property tax, insurance, utilities, condo fees and maintenance.
A smaller purchase-to-sale gap can help, but these expenses may use up part of the benefit.
For downsizers, it is especially important to compare the monthly costs of the new home with those of the old one.
06 / TIMING THE TWO TRANSACTIONS
There is another risk: the two prices may change at different times.
You might find a home you want before selling your current property.
Or you might sell first and spend several months looking for the right replacement.
Both situations create decisions you should prepare for.
You may know the cost of your next home without knowing your final sale proceeds. Financing and closing-date arrangements become especially important.
You know how much your home sold for, but a suitable replacement may take time to find. Temporary housing or storage may be needed.
Bridge financing may help some buyers who have firm sale and purchase agreements with different closing dates. Availability, costs and conditions depend on the lender.
A successful move needs a realistic plan for both transactions, including what happens if a sale is delayed or the expected price changes.
07 / TEST THE NUMBERS
Would a change in prices help your move?
Tap each example to explore what happens.
Both homes fall by 5%. Does the gap change?
Yes. Suppose your home was worth $1 million and the one you wanted cost $1.5 million. The original gap was $500,000. After both fall 5%, the prices become $950,000 and $1,425,000. The gap narrows to $475,000 — a $25,000 improvement before other costs.
You're downsizing and both homes fall by 5%. Is that good?
Not necessarily. A $1.5 million home falling to $1,425,000 loses $75,000 in value. A $900,000 replacement falling to $855,000 loses $45,000. The difference between the two shrinks by $30,000. That could leave less gross money available from downsizing.
Your home sells for less, but your next home costs much less. Should you move?
The smaller price gap may help. You still need to calculate net sale proceeds, new mortgage payments, moving expenses and the ongoing cost of the new home. The move should make sense for your finances and your life.
08 / PLAN FOR MORE THAN ONE OUTCOME
Try three possible price combinations.
A single estimate can give you false confidence. Use a range for both properties.
FAVOURABLE SCENARIO
Your home sells for $790,000. Your next home costs $1,150,000.
Gap: $360,000MIDDLE SCENARIO
Your home sells for $750,000. Your next home costs $1,200,000.
Gap: $450,000LESS FAVOURABLE SCENARIO
Your home sells for $710,000. Your next home costs $1,250,000.
Gap: $540,000That is a $180,000 difference between the most favourable and least favourable price gaps.
The examples are hypothetical, but the exercise is useful. Make sure your plan can handle less favourable numbers before you commit to two transactions.
Your moving decision checklist
□ What is a realistic sale-price range for my current home?
□ What are suitable replacement homes selling for?
□ How much mortgage debt must I repay?
□ How much cash will remain after selling?
□ What are the full costs of buying and moving?
□ What will the new monthly cost be?
□ Can I manage the move if one transaction goes less favourably than expected?
Judge the move from start to finish.
A lower sale price can be disappointing. But the effect on your next move depends on the price of the home you're buying.
Sometimes the gap becomes smaller. Sometimes it grows. Different types of homes can move in different directions.
Before deciding whether to move, understand both ends of the transaction and what the full change will mean for your finances.
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