Welcome to Toronto, Canada’s financial, business, and cultural capital. The city is a focal point for immigrants arriving in the country which has made the fastest growing city in all of the Americas. Moreover, its unique urban planning rule of mixing apartments with residential lots has helped curb suburban sprawl in the past 20 and so years.

However, this growth has spurred into an urban sprawl causing the city to spread as far as Oshawa and thus increasing the size of the Greater Toronto Area (GTA). Other than that, housing prices have reached some of the highest of highs (even higher than that of Vancouver).

This has resulted in homes becoming an expensive commodity. To curb on home payment default, the city implemented improved credit stress tests and some pricing controls to ensure prices are in line. Though they have cooled down recently, they are unlike any of the prices that were observed in the late 80s and early (and mid) 90s.

Should people purchase a home to sell it early?

Well, in all honesty; people buy a home to either live in it, to save it for their kids, to rent it out, and/or to sell it when the time comes. They often sell it when the time is right as it often gains a good profit. Some could sell their newly purchased home sometime after they close it, but for some reason, this may not be in their best interests.

It is not just the suburban homes; it’s also common with City place condos. They are lucrative and are in a very good place. But selling them almost immediately after closing the purchase on them; not a good call.

Lets now investigate in deep detail about why people should never purchase a house with an intent to sell it early.

Buying a home – Selling it early is not feasible

Let’s be honest with each other; real estate is a long-term investment which indicates that if buyers/property owners sell their recently acquired properties soon, then they will not gain any financial benefits.

If they are buying a home intending to sell it as soon as possible, then the timeline homeowners/buyers have is quite short. The market often appreciates around 5% yearly and the costs on the property to close and sell are usually 10% of its price.

Hence, those who purchased it need to keep it for at least two years to earn a break-even with the buying price. Needless to say, a neat profit does not come in early.

Experts recommend that no one should buy a home to sell it a specific time. The main reason being is that the market conditions may not be right when that time arrives and that the homeowner is putting themselves at risk of a loss.

If a person wishes to sell their newly purchased home early, when does it make sense to sell it early?

There are one thing residents, buyers and homeowners alike should understand. Even if the property’s value increased with time, some costs are associated with selling it. That is, if a real estate agent’s assistance was used in selling it, then they will charge their commission/fee in this regard.

Speaking of, an experienced real estate agent can help homeowners properly evaluate the value of their property to help them sell it at a very good price.

Only a few instances lead to a potential profit when it comes to selling a home early. One possible reason is that the homeowner made renovations to the home which increased its value by quite a margin. Hence, this can give the homeowner a reason to sell it at a good price.

Another reason for this is that the neighborhood where the property is located inexperienced a sudden increase in the value and the market of that area became profitable.

There is a possibility that the neighborhood where the property is located could see a sudden rise in prices or the market goes up more than the normal yearly expected rate of increase. However, such a circumstance can never be predicted.

Hence, it is advised not to purchase a residential property (home, apartment, loft, condo) assuming that the market will change as it is always fluctuating. The market is not always fluctuating.

What are the transaction costs accompanying selling a home?

In Canada, the thing that benefits home sellers the most is that there are no capital gains when people are selling their main home. With investment properties, however, it isn’t true and capital gains are charged from them.

When homeowners are selling their home, the usual real estate fees are 5% inclusive of tax. A common practice among Torontonians is that the seller will already get the home inspection prepared (which can be between C$500 – C$1500).

Also, getting their home ready for promotion will cost additionally especially when it comes to staging, cleaning, landscaping, painting, and the like.

Any penalties for prepayment of mortgage?

Lenders can charge homebuyers a penalty for prepayment of mortgage, especially when they are intent on selling the home before the mortgage’s term is over. This is a fee some lenders can charge when homebuyers manage to pay off some of the mortgage or all of it before the term’s end.

The prepayment penalty is often agreed upon when the buyers have closed on their homes. It is usually either 3 months of interest or the interest rate differential (IRD). The latter is a calculation the lender will make based on the amount of money left on the mortgage’s term, the amount of the outstanding loan, and the interest rate.

Other than that, each lender calculates this differently. Hence, homebuyers should consult with their lenders to determine how much the exact costs are when they are preparing to sell the home.

Conclusion

It depends on the factors unique to the property when it comes to homeowners/buyers selling their newly purchased home early. To avert any confusion in terms of transaction costs coming with selling a home, the loss they might incur, and prepayment of mortgage penalties, residents should never hesitate in consulting an experienced real estate agent in this regard.