Every year, thousands of homeowners are faced with the common dilemma of whether they should buy first or sell first when moving from one to home to another. This situation can be quite confusing as some people don’t want to sell their house until they’ve found a new one, or many are worried they can’t buy a new home until their old house has been sold.
This situation is what people commonly call the real estate Catch 22. So, to take the guesswork out for you, Kindred Property Group have created this guide to hopefully help guide you through the considerations of which may be best for you.
Buying a house before you sell
Purchasing a new home first before selling has become a very popular option for many homeowners for a number of reasons. Why? Because this option provides you with the significant advantage of avoiding the hassle of renting while you find a new house to buy.
Buying before selling is ideal for people with more purchasing power and significant equity in their current property. It is important that you consult a financial professional to ensure you are in the financial position to simultaneously hold both properties. If for some reason you are not, this is when you may want to look to sell your house first before buying a new one.
Selling a house before you buy
Selling your home first may be a better option for you if you do not have the financial situation allowing you to hold two mortgages. There is also the advantage of knowing exactly how much money you have to spend as your previous house sale is finalised.
However, by selling your existing house first, you may be required to rent while you look for a suitable new home. Moving twice can be extremely costly if it takes a substantial time to find the perfect new home; however, there may also be a workaround to this. By working with a skilled real estate agent who has your best interest at heart like those at Kindred Property, you may be able to negotiate in the sale of your home to rent your home back from the new owner for a period of time until you secure a new property or request a more extended settlement period to allow you ample time to find a new place.
Should you sell and buy at the same time?
The simultaneous buy-sell scenario isn’t exactly a common route that home buyers take, but it’s possible. In fact, thousands of Australians manage this financial feat every year. You just need a bit of luck and the right amount of planning and preparation. But if you’re buying and selling simultaneously, you don’t have to worry much about market trends.
You can either make your purchase subject to completion of the sale, apply for a bridging loan, or extend your settlement periods. Going for an extended settlement period depends on how open the other party is when it comes to negotiations. You can also consider offering an incentive to the other party or hire a reputable real estate agent that can negotiate on your behalf like those at Kindred Property Group.
Simultaneous settlement: what you need to know
1. What is simultaneous settlement?
Simultaneous settlement occurs when selling a previous property and buying a new one happens at the same time. It takes some considerations of timing and negotiations of settlements to line up; however, when it works for you, you don’t have to rent a different property while waiting to buy a new house. Also, you don’t have to pay for the mortgage of two properties at the same time.
2. How does simultaneous settlement work?
If you really want to successfully push through with a simultaneous settlement, you can opt to have an extended settlement period. Again, you’ll need to have expert negotiation skills or partner with a skilled real estate agent in order to have the other party agree to the delayed settlement on either the home you are selling or the home you are buying.
For example, suppose you sell your home first. In that case, you can set an extended settlement period for six months in the contract as a condition of sale. Within this period, you can buy a new house and complete its settlement. Likewise, if you choose to buy first, you can request an extended settlement period from the seller. This should give you enough time to sell your old house and do the settlements.
3. Risks & benefits of simultaneous settlement
A simultaneous settlement has its benefits. One of which is that it avoids the need to take out a bridging loan. You don’t need to move into a temporary home, because if everything goes to plan, you can move out of your old house in the morning and into your new home the same day. But keep in mind that there are also risks that you should be aware of.
The simultaneous settlement needs versatility around the settlement period from at least one party. It isn’t always possible because of conventions around settlement times that many parties rely on. If possible, it sometimes can come at a cost because of the concessions buyers and sellers must agree on to make the simultaneous settlement work.
There can also be several parties involved, such as the buyer of your old house, the seller of your new home, their respective lenders, and of course, you and your lenders. And aligning with several parties can definitely get messy fast.
Another scenario to consider with a simultaneous settlement is that when two settlements are related to each other. If there’s a problem with one, it can delay the process of the other. It may even result in penalty fees, being stranded with no home to move into, or worse, the loss of the deposit on your new home. This is why it is crucial to ensure you have the best professional support around you, including an expert real estate agent.
In a nutshell, there is no right or wrong choice when it comes to selling your house and buying another – the right answer is the one that suits you and your unique circumstance.
Since every situation is different, it’s important that you consider all your options before making the choice of what is right for you. At the end of the day, it will all depend on your personal preference and financial situation. It would be best to get a real estate professional who can guide you through every step of the process, that way you get all the information you need when buying a new home.