January/February is a busy time in the real estate world as people have had time over the Xmas holidays to reflect on the changes they want to make in their lives. So much of our personal happiness seems to rest on where we live and what we live in. And who we live with is also a major factor, so I suppose it’s no surprise then that divorce lawyers are also rushed off their feet at this time of year… One of the biggest dilemmas people face is whether to buy now and sell later or visa versa.
Over the last month I have spoken to a number of people saying that they have decided to sell their property now so that they will be ready to buy a bigger/better home some other time during the year. And the first question I always ask is: why?
The answer they usually give is because they need to sell before buying. This can be an extremely wise thing to do BUT it is not always the case, so a little bit of personal due diligence should be done before signing an agency agreement. Depending on finance and market conditions, it can sometimes be better to buy now and sell later.
Selling before buying works very well in a falling market. It is also advisable if you can’t get bridging finance or would not be able to pay two mortgages should you find yourself owning two properties for an extended period of time. This is the order in which risk averse people like to do things.
What is not often discussed are the risks associated with selling before you buy. In a property boom, selling before buying can cost thousands and thousands of dollars in the event that you can’t find another home quickly. Or the resulting panic can lead to buying the wrong property and/or paying too much! The strain on relationships caused by all of the above can be devastating.
Simple truth: Do what is hardest first.
In a seller’s market you will find it harder to find your perfect home, so buying first is best.
In a buyer’s market it is harder to sell, so do not buy first.
Over the past few boom years I have met many couples who have sold at what they thought was the top of the market only to find that months (even years) later they could no longer afford to buy what they originally wanted. We have had people come to us demoralised through fruitless property searching, unable to agree on what compromises they are prepared to make and often punishing themselves (and each other) for the lessons they have only learnt through retrospect. These people, in retrospect, wish they had thought to buy now and sell later.
One way to mitigate the risks involved with selling first is to make sure you have a crystal clear plan of what to do IMMEDIATELY after your sale. In order to do this you need to have the following:
- a REALISTIC price expectation for your own home
- an EXPERIENCED mortgage broker on board who can give you sound and timely advice on your borrowing power and ideal structuring
- an AGREED brief (write them separately first then compare notes and discuss priorities)
- UP TO DATE market knowledge in your desired location
- a REALITY CHECK on what your budget buys in your chosen area
- if you are chasing a pipe dream DO NOT SELL! Instead, consider three options:
- Find another area where you can afford the sort of property you need,
- Downgrade your property expectations (smaller, renovate, less parking…), or…
- Find more money.
If you can’t hit the ground running after you sell your home you will be at a disadvantage because the market may be on the rise and the time you take to come to these conclusions will cost you dearly. Even if the market is static, the time put into researching exactly what you can buy will be invaluable because you will then have options. You will be able to recognize a good property to buy when you see it. You will also know what you should pay for it. You can also choose to wait if you understand market dynamics and know that this will work in your favour.
Knowledge is power and I strongly recommend that you consider both halves of the property equation before you decide to sell your home. Sometimes it is truly better to buy now and sell later. Other times it is better to do nothing!
First published: February 2016
Updated: January 2018
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.