As a homeowner, and one who is ready to make the move, you may have wondered whether you should buy or sell first.
Moving is an emotional, time-consuming and costly process, so it’s essential to make a decision you’re comfortable with.
However, how do you determine whether to buy or sell your home first?
Questions to Ask Yourself
Initial Questions
- Are you moving to be near ageing parents or grandchildren?
- Is your current home just not working for you anymore?
- Do you want to be in a particular school catchment zone by the time enrolments start?
- Do you just have a love for a specific area and want to live there?
- Are you simply running out of room?
- Is your home too big?
- Do you need to move sooner rather than later?
Depending on your personal circumstances, it may be more sensible to find a suitable property in your target area and buy it before selling your home. In a tightly held area, lack of supply could mean waiting months to find your next suitable home.
Really think through your reasons for moving, as these should have some influence on the order of your two real estate transactions.
How Much Risk Are You Comfortable With?
Your risk appetite is a significant factor in deciding whether to buy or sell first.
Suppose you are willing to take on high-risk situations. In that case, buying first can be a good option, especially if the market is rising and you can negotiate a more extended settlement period for the purchase.
On the other hand, if you are risk-averse, selling first will likely be a better choice. This way, you’ll know exactly how much money you have to spend on your next purchase, which can help you avoid any financial surprises.
Is the Market Rising or Falling?
If you are willing to take risks, consider taking advantage of both the buying and selling cycles of the market.
When the market is doing well, and there is a general belief that property prices will continue to rise, buying a property first could be a good opportunity, knowing that you can sell it quickly and for a reasonable price later.
However, if the prediction is that the market is on a downward trend and the days on the market are growing, selling your property within a short timeframe and at a premium price could be difficult. On the other hand, buying your next home during this time could be a good opportunity to purchase it at a lower price.
What Can You Afford?
It is crucial to have a discussion with your mortgage broker, bank, and accountant before committing to buying or selling a home. This conversation will ensure that you are financially capable of making the move.
If you intend to buy a home first, your mortgage broker or bank will evaluate whether you have adequate equity in your present property to obtain bridging finance, which may be necessary.
Also, you must consider the deposit payment for the property you intend to purchase. Typically, the deposit is 10% of the contract purchase price, and you should make arrangements for payment.
Selling before buying: potential pros
- Requesting an extended settlement on the contract of sale gives you time to buy another property and potentially settle simultaneously on both properties, which means only one move.
- Reduced stress and less pressure to achieve a favourable sale before a particular deadline.
- You have more time to determine what the market is willing to pay for your home, which can help you decide if the move you want to make is worthwhile.
- Knowing exactly what you have to spend on the next purchase makes budgeting easier. It reduces the stress of worrying about what your home will sell for.
- If you get a better price than expected for the sale of your home, it may mean a better house than initially planned.purchase
Selling before buying: potential cons
- Organising an extra move if nothing is suitable on the market or you have missed out on a few homes.
- The added expense and hassle of moving twice, including renting or moving in with family.
- Prices may go up after selling, making it possible for you to be priced out of the market or have to look further afield.
- Your buying decisions are limited by what’s available at that time, especially if the brief is tight.
- If the market starts to move, you may feel pressured to buy something that doesn’t fit your needs.
Buying before selling: potential pros
- No pressure to commit to buying a home until you find a property that suits you.
- Negotiating an extended settlement on the purchase may allow for simultaneous settlement, eliminating the need for bridging finance and moving home twice.
- Buying a property before selling your home may make more sense in tightly held areas where lack of supply can mean waiting many months for a home to become available.
Buying before selling: potential cons
- Bridging finance may be needed, which can add extra costs. Lenders may not be keen on this type of finance, especially if you pay off the loan in full once the home is sold.
- There may be pressure to sell the home within a limited timeframe, which could result in accepting a price or less desirable terms.
- Unforeseen market forces, such as a pandemic or wars, can cause the market to change unfavourably and quickly. This could lead to the need to sell the home at a lower price than expected.
Regardless of your decision, you must have a conversation with your broker, lender, or accountant to ensure that you are financially prepared to move. After this has been confirmed, you should focus on getting your current home ready to sell in the market. This preparation includes interviewing potential agents who can help you sell your home. It’s always a good idea to be prepared to go on the market if your dream home comes along.