Buy first or sell first? How to decide on the right order for you
By Chris Wright, The Wright Team, Harcourts Wanaka.
Moving house is a stressful time and the decision of whether to buy or sell first is often a huge contributor to this anxiety.
But it needn’t be a scary dilemma. There are pros and cons to both methods and hopefully this article will get clear in your mind what they are. Remember — there’s no right or wrong way and, with a little research, you’ll be able to decide on the process that’s right for you and your family.
The primary benefit of selling first is that you’ve cashed up and you know exactly what you can afford — meaning you’re more likely to end up with a property you love for a price you’re happy with.
You’re also fully-equipped to compete for highly-contested properties. In a market where auction is the preferred method of sale (like the Central Otago Lakes region), you’re in the enviable position of being able to bid unconditionally.
It’s also usually easier to obtain a mortgage for a new property when you’ve already sold your home, making the financial procedure simpler — a great thing when you’ve got a lot on your plate.
So, logistically, selling first is often the way to go — especially if you have a reliance on the value of your current home in obtaining your next property.
The main concern, however, is that you might have to go through the hassle of moving twice: first to temporary (and possibly expensive) accommodation and again once you’ve bought your new home. It’s sometimes possible to arrange a later settlement date to give you a chance to buy in the meantime, or perhaps you can stay with friends or family in the changeover period.
The main drawback to buying first is that it’s easy to become financially stretched. It can be difficult to obtain a second mortgage due to an increased debt to income ratio when you own two properties — and, of course, having to cover two mortgage repayments each month can be a struggle.
Another difficulty is that the amount you can afford for a new home might be subject to the sale price you achieve. Over- or under-estimating your current home’s value can leave you with regrets. You might buy a property you can’t really afford or find yourself wishing you’d bought bigger.
The combination of these financial pressures might lead you to accept a lower sale price for your current property, simply through desperation to make a sale. Record-breaking prices come from well-executed marketing campaigns which need to run their full course to be most effective.
However, buying first can still be a great option for many.
When purchasing, many sellers will allow offers conditional to the sale of your own property, which grants you extra security. And, at auction, you can request a side agreement to allow settlement dates to tie in with each other, giving you time to sell beforehand.
If you’ve bought first and find yourself in the position of owning two properties, there is the option of getting short-term tenants into your old home to help finance the move. Just be sure to make the tenants aware of presentation requirements and that you need to maintain access for open homes and private viewings.
If you’ve paid off your mortgage or if you have financial freedom, you’ll likely be immune to many of the usual concerns of buying first — enjoy the flexibility and time you have on your side.
Choosing the right option for you
The decision is different for every person and, whichever course of action you take, it helps to speak to professionals.
At the end of the day, your ability to purchase a property before selling will depend on the finances you have access to.
So you should firstly seek financial advice from mortgage advisors and the bank. They will be able to offer expert information specifically for your situation, which is invaluable in the big life event of a home move.
Take time to speak to a trusted real estate consultant at the beginning of your journey, too. An agency-managed appraisal is the single most accurate way to value your home — vital knowledge whether you’re buying or selling first.
On top of that, consultants can arm you with information about the current market — the state of which will have an undeniable impact on your decision. An agent will help you understand the areas you’re buying into and selling from, you’ll get a much better idea of what you can afford and you’ll achieve the best sale results.
So, essentially, sell first if you’re reliant on funds from your current property sale as you’ll know exactly what you can afford when buying.
Buy first if you have financial freedom as it grants you more time.
And, if you’re still not sure, give Harcourts a call and we’ll help you explore your options.