While your first home will always hold a special place in your heart, it may no longer be what you and your family need today. You might require an extra bedroom for your growing brood, more land for a vegetable patch or you might be moving suburbs altogether.
Whatever your reason for moving, the question remains: do you buy first then sell, or do you sell first then buy? There isn’t a right or wrong answer – depending on your circumstances, both options have benefits and risks.
Buying and selling property can be stressful no matter which order you choose. In some ways, buying your second home isn’t any easier than your first – and there’s usually a bit of juggling required. Preparation is key to managing the buy and sell process for minimal disruption to your family’s life.
Here we look at the pros and cons of buying or selling first – and what this could mean for your new home-buying journey second-time round.
Option 1: Buy first then sell
In a seller’s market, where strong demand leads to high prices and fast property sales, buying a new house first can be a good option. Pressure on buyers to ‘get in first’ means your property should sell quickly when you do put it on the market.
It’s also quite common for people to find their dream home before selling – sometimes it can take you completely by surprise. This means you may be tempted to buy first so you don’t miss out on that special property.
Buying first gives you the luxury of time.
Without the settlement deadline looming on the horizon, there’s no rush to secure your new home.
Your finances will take a hit.
First, you’ll need the money for a deposit (using your equity might be tricky). Then, until you sell your existing property, you’ll need to pay double the bills: mortgage, insurance, rates – all those good things. You could opt to rent out one of your homes until you’ve successfully sold to lessen the financial strain.
You might settle for a modest price.
This added financial pressure can sometimes force sellers to accept a lower than anticipated price for their existing house just to seal the deal quickly.
There’s no guarantee your house will sell.
In a slow market, it may take longer than you expect to sell your existing house.
You could negotiate a special clause.
Some people will negotiate a clause which affords them time to sell their own home (within an agreed period) before they’re legally obligated to make the purchase.
This could drive the sale price higher.
If you’re looking to buy a property that is in high demand, you may have to consider paying more than the asking price so you don’t lose out.
There are other finance options.
A long settlement period may not be an option, so a bridging loan could help cover the shortfall between buying and selling. Bridging finance means you pay off a loan over two properties until your existing property sells, but this can prove costly in some financial situations. You should speak to a mortgage broker.
Option 2: Sell first then buy
Selling your house before you buy another one is a more common way to upgrade (or downsize). In a buyer’s market, where there is less competition and homes generally take longer to go, selling first can be a safer option.
However, it doesn’t come without risks. While selling first will ensure you don’t overextend your budget for a new home by overestimating the worth of your current house, there’s no guarantee you’ll find a new place to live immediately.
Selling first will give you a clear picture of your finances.
Once you’ve accepted a buyer’s offer, you’ll know exactly what you can afford. Knowing how much cash you can spend on a new home will help you narrow down the search. Being a ‘cash buyer’ also means you might be able to negotiate a better deal on a sale price.
You may have to move twice.
By selling first, you may be forced to live somewhere else if you don’t find the perfect new home straight away. You could rent, stay in a hotel or live with family members in the meantime. But that still means two loads of packing and unpacking, forking out extra for short-term accommodation, and paying for storage while you’re between properties.
Once you’ve accepted a buyer’s offer, the clock starts ticking.
Some people make an offer on a home that doesn’t exactly fit their wish list – because they want to avoid moving twice, or the pressure of not having a place to live becomes too great.
An extended settlement period will give you more time.
Negotiating a delay between the sale of your existing home and the date you hand over the keys to the new owner will give you more time to find a new property.
You run the risk of property prices rising.
An extended gap between sale and purchase risks property prices increasing –you’ll get less for your buck as time goes on. If you have a significant amount of equity from the sale of your first home, you could invest it in the interim.
Be prepared and get your finances sorted
It doesn’t matter whether you buy or sell first if you don’t have your house in order. Be prepared for a few hiccups along the way by getting your finances sorted, keeping an eye on the property market and preparing your existing property for sale. That way things will run as smoothly as possible.
Working with a financial advisor or mortgage broker will give you the guidance and advice you need to ensure you’re in a strong financial position to buy and sell – whichever way you choose.
When you’re ready to buy and sell, get in touch with the Global Finance team to talk through what option is best for you.
**These are general guidelines and are by no means a reflection of bank or lending policies