Sell First or Buy First?
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SELL FIRST, OR BUY FIRST?
In a previous article, a buyer who was the seventh to submit an offer on a property, and who needed to sell their home before buying, was mentioned.
In a quick-paced market with lots of buyers, this can pose a challenge, and in the current market you will almost certainly miss out.
So, if you need to sell a house in order to buy another house, do you sell first, or buy first?
There is no right or wrong approach, but it is advisable to consider market conditions.
Currently there has been considerable buyer activity and we are in a SELLER'S MARKET.
This means that it is advisable to sell your home before putting in an offer on the next one, to avoid the risk of having to pay two bonds while waiting for your home to sell, or missing out on your property by being beaten to the finish line by other buyers who don't need to sell.
Advantages of selling your current house first:
- This is generally considered the safer option, as equity is freed up for a deposit on your next home, and your debt-to-income ratio is reduced, thus improving the chance of home loan approval on your next bond.
- Selling first gives you as the buyer better bargaining power both on the buying and selling front, as you are able to negotiate a better price on your purchase, and will not have to accept a lower offer on existing property just because you need to sell quicker.
- YOU generally know your budget or how much money you actually have (between the proceeds of sale, a bond, cash etc)
Disadvantages of selling your house first:
- Deciding on moving dates can be tricky especially when you are selling before you buy. You may have to pay for a short-term rental, or an Airbnb stay, if the timing of the sale means that you are without accommodation while you are working on the purchase of your next home.
- The most common stress is "what if I can't find my next property?".
So plan and do your homework accordingly.
Should you decide to buy first without selling, take note of the following:
- Include a contingency clause in your Offer to Purchase for your new home that says that a condition of the offer is the sale of your current home.
- The subject-to clause that might be imposed by your bank could result in disappointment, as a 72-hour clause could be imposed that should the buyer receive a better offer, you will have 72 hours to counter-offer, or come up with an alternative solution.
- Submit an offer to buy, if accepted you "lock in the price" as the offer is accepted.
There are disadvantages of buying a new home before selling your current home:
- If you end up owning two properties at the same time, you will incur not just two monthly repayments, but rates, taxes, and levies too.
- Will you be able to afford to pay both bonds if your current home is not sold by the time transfer takes place on your new property?
- Selling an unoccupied property can often be more difficult, so selling the home you move out of could be trickier/take longer.
- If you have bought a property and your current home is on the market, you could be pressured eventually to sell at a lower price as it gets to the crunch, and you get "desperate to sell" (to avoid double bonds etc.).
- Carefully calculate and consider whether you have enough funds to put down a deposit on the new home? Remember to include transaction costs (transfer fees, duty, etc.)
Most people try to do it simultaneously, but in the current market, i.e., Seller's Market, we advocate selling your current home before buying a new home, but match the timing as closely as possible.
You should in any event be looking at both legs when you do your research.
You know how much money you have in the pot and what you can afford to buy etc.
If the property is sold conclusively, you can then put a clean offer on your buying leg, which means you have better negotiating power, and it is safer (no double bonds etc.).
Author: Seeff Somerset West
