Sell or buy, which to do first?
When you’re ready to sell up and move into a new home, there are heaps of things to consider, and it pays to have a strategy in place, rather than just diving right in. Generally speaking, the goals for that strategy are to a) get a great price on your old home and b) secure the deed to your brand new dream home. And, with a little luck, you’ll achieve those goals while c) keeping your sanity intact.
A lot of what goes into a successful move is timing, so one thing you might be asking yourself after you’ve skim read the tenth removalist add in a row is: should I sell my house, or buy my new one first?
Before you get too excited, we don’t have one great answer. There isn’t one great answer. It depends on your individual circumstances, needs and budget. But to help you decide, we’ve broken down each approach and listed pros, cons, and how to make it work for you.
Selling before you buy
Advantages of selling first
- It’s less risky, financially speaking. You’ll already have the money in your pocket, so you’ll know exactly what budget you’re working to.
- Already having your budget set out means that as a buyer you can get everything in order and be ready to sign an agreement straight away – making you a home seller’s dream.
- There’s less pressure. You don’t have a brand new home loan to repay and you’re not eating baked beans every meal for the sake of temporarily owning two houses. That means you’re under less pressure to sell, so you’ll be able to wait and get the right price, rather than rushing into a less lucrative sale.
- If housing market prices are dropping, you may be able to get a great price on your home, and then cash in on lower buying prices when you’re ready to purchase your new place.
Disadvantages of selling first
- The paperwork. Although it’s unavoidable, time-consuming paperwork can be an extra large hurdle when you’re selling first, because you and your family will likely be left in limbo for at least a short time, while it all gets sorted out.
- What if your dream home doesn’t come along right after you sell? In this case, you may end up having to rent for a while, maybe even for a year or more. Carefully consider what this will do to your budget – a few months of rent might make a serious dent in the deposit for your new home.
- Think about where you’ll put your belongings in this interim period. You’ll likely be taking a house full of furniture, plus all your appliances, household goods, clothes, toys and knick knacks with you. Make sure you consider the cost of storage while you look for a place.
- This extra stop on the road to your new home might also mean paying two sets of movers fees.
Tips to make it work
- Think about where you’ll stay between selling and buying. Will you have to rent, and if so, what’s the market like? Maybe you can stay with family or friends, while you search for a new home, and cut costs that way.
- Get organised so that you’re ready to buy ASAP after selling. This means having your deposit saved up, and even going as far as having your home loan pre-approved.
- Have a buying wishlist – know where and what you want in your new property, so you can decide quickly and seal the deal.
Buying before you sell
Advantages of buying first
- By buying first, you can avoid having to rent and can instead move straight into your new home. This can save a lot of time, stress and money.
- If you’re buying first, you aren’t rushing to find a new home while watching your temporary rental drain your savings account of dollars. You can shop around for what you really want, without the pressure of a deadline looming above you.
- In a property market where house prices are rising, you’ll be able to snag a good deal on your new dream home, and then later sell your old place for much more.
Disadvantages of buying first
- Buying a new home before you sell your old one can cause financial strain. Paying your deposit, or making mortgage payments on two properties at once can really drain your budget if you haven’t got the settlement price from selling one home in your pocket.
- It’s harder to budget. Although you may have a decent idea of what your old home will sell for, you can’t be sure – markets can change quickly, and you can’t discount plain bad luck – so you’ll essentially be buying blind. If your old home sells for less than expected, you may find yourself cash strapped
Tips to make it work
- Apply for a bridging loan. This is a loan similar to a home loan, that’s designed specifically to cover the costs of buying and selling homes. Generally speaking, it will have a higher interest rate and last for a shorter term (usually between 6 and 12 months), so it’s not exactly a cheap loan. But if you’ve decided on buying before you sell, a bridging loan can get you there.
- Think about renting your home out while looking for a buyer. This takes the pressure to sell off, so you can look a little more carefully at the market and plan to get the best bang for your buck before selling up. The rent will help cover costs while you get the sale in order.
Deposit power guarantee
A deposit power guarantee is a substitute for a cash deposit that you can use between signing agreements and settling the purchase of your new property. You’ll still have to pay the deposit at settlement, but this allows you to sign an agreement if your cash is tied up elsewhere – for example, if the sale of your previous home hasn’t been completed just yet.
A deposit power guarantee will cover up to 10% of the price of the property you’re buying.
A conditional offer is an agreement that you will buy a property, as long as you can sell your old home within a certain time frame.
While this can save you a lot of time and money by allowing you to buy and sell basically simultaneously, it sometimes doesn’t work. For one thing, sellers may pass up a conditional offer in favour of a buyer who already has the funds available to buy their house. Sellers are also able to accept other offers while your conditional offer still stands – so if you’ve got your heart set on a home, a conditional offer can be a risky move.
Other costs to think about
While the actual sale or purchase of the property will probably be at the forefront of your thoughts, there are other costs associated with moving house that you should also consider. Don’t forget to budget for:
- Removalists: Getting all your worldly belongings to your new pad may wind up costing more than you expect, especially if you have to move to a rental for a time before heading to your new home.
- Stamp duty: This is a government tax, and unavoidable, except if you qualify for concessions or exemption – which usually only applies to first home buyers. To work out how much you might pay on your new home, check out our stamp duty calculator.
- Legal and conveyancing fees: conveyancing is the transferral of ownership of a property – that means all the paperwork and legal business of buying or selling a home. It comes with it’s own set of fees and charges that you should factor into the cost of moving home.
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