Should you buy first or sell first?

Let’s face it, buying and selling real estate are both stressful exercises. Especially when you add into the equation the dilemma of whether to sell your existing home before you buy your new one or vice-versa. There is a simple principle to use when deciding whether to buy first or sell first, but there’s a bit of groundwork you need to do before applying it.

The prospect of having to fund two mortgages can be very scary for many people and the idea of being homeless, (or having to rent for a while and move twice), can be unbearable for others. The worst-case scenario would be to buy your dream home and then face the nightmare of selling your existing one for much less than you were counting on. An equally daunting outcome could be spending a long time off the property ladder as your dream home turns out to be an elusive fantasy. Deciding whether to buy first or sell first can come down to your personal risk profile, however, it’s important to consider the big picture so you fully understand those risks.

Step one

Find out how much money your bank will lend you and whether you can borrow enough to cover owning two properties for a period of time. If they will give you bridging finance, for instance, you’ll need to understand the costs and whether there is a time limit. If you cannot fund more than one property at a time, the answer to whether you should buy first or sell first is a given: you need to sell before you can buy. 

If your bank will lend you the funds, then you need to consider market conditions before deciding to buy before you sell.  See step two.

Step two

Fundamental to your decision is whether the market conditions at the time favour the buyer or the seller. Are you buying and selling in the same market? Are you planning on an interstate move, or a tree/sea change? City and regional markets, can differ substantially and getting the timing right (or wrong) will have a much greater impact on your financial position.

The simple answer is to do what is hardest first. If you are moving out of a market where it will be easy to sell and into a market where it’s difficult to find the perfect home, then I’d suggest that you buy before you sell. If you have the type of home that has a limited buyer pool, you might be better off selling first.

If you are buying and selling in the same market, then market conditions will dictate whether its best to buy first or sell first.

In a buyers market you will find it harder to sell than to buy,  therefore selling first will usually be the best plan. The price you can expect to get for your current home will be less certain so you will find it difficult to know exactly what the budget should be for your new home. By selling first you will know precisely how much money you will have to spend and be able to turn the market conditions to your advantage as you can expect plenty or property on the market to choose from when you are ready to buy.

When in a seller’s market, it stands to reason that you are going to find it easier to sell, so in most cases, it’s better to buy before you sell. When you look to buy there will be a scarcity of property to choose from and fierce competition from other buyers. If you sell first you run the risk of a long lead-time before securing your next property. You may also have to rent in between transactions.  Many buyers in this situation find themselves tempted to make a panic purchase, which they could live to regret all too quickly.

In a seller’s market, there is another compelling reason to buy before you sell. When prices are rising, if you don’t buy back in quickly, you run the risk of being priced out of the market. Over the last few years, I have met many people who had sold up and then couldn’t find the right place to purchase.  They ended up effectively not being able to afford to buy their old house back.

One of the ways we guide our clients through the dilemma of whether to buy first or sell first is to help them gain clarity about exactly the sort of property they will be able to buy. Often people have unrealistic expectations, so it’s important that they start from a position of knowledge. Even if you cannot get bridging finance and don’t have the option to buy before you sell, knowing what and where to buy before you even list your property for sale will give you a distinct advantage. It will allow you to hit the ground running the moment you find a buyer for your place. Our Getting Started Session is a powerful way for you to gain clarity and focus, both of which are essential when deciding whether to buy first or sell first.

Further reading:

How to Make the Most of your Borrowing Power When Every Dollar Counts

How to decide the best time to sell your home and avoid being homeless

When Is The Best Time To Buy A Property And Stop Looking?

Published: January 18th 2018

Updated: August 1st 2019

DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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