Should You Buy First or Sell First? Navigating the Real Estate Challenge

By Rich Harvey, CEO & Founder, propertybuyer

Written by: Rich Harvey, CEO & Founder

propertybuyer.com.au

Buyers and sellers are constantly faced with an age-old dilemma: should you buy a new home before selling your current one, or should you sell first and then buy? Each approach has its own set of advantages and drawbacks, and making the right choice depends on your unique circumstances and market conditions. This month I delve into the pros and cons of both strategies and suggest practical strategies to navigate this challenging decision. As an experienced buyers’ agent, I’ve seen plenty of mistakes made by buyers and sellers that end up putting themselves in a more pressured situation.

Buying Before Selling:

Pros:

1. Securing Your Dream Home: One of the main advantages of buying before selling is the assurance of securing your next home. The real estate market can be highly competitive, and finding a home that meets your criteria can be challenging. Buying first ensures you won’t miss out on your ideal property while waiting for your current home to sell.
2. Less Stressful Transition: Moving from one home to another without the pressure of a tight timeline can reduce stress. You can move at your own pace, which is especially beneficial if you have a family or a busy work schedule.
3. Home Improvements: Having the new home secured allows you to make repairs or upgrades to your current home without the inconvenience of living in a construction zone. This can potentially increase your home's value and appeal to buyers.

Cons:

1. Financial Strain: Buying before selling often requires bridging finance or carrying two mortgages simultaneously, which can be a financial burden. Not everyone can qualify for or manage this kind of financial commitment.
2. Market Uncertainty: If the real estate market is slow in your area, selling your existing home might take longer than expected. This delay can lead to prolonged financial strain and uncertainty.
3. Pressure to Sell Quickly: The need to sell your current home quickly to avoid prolonged dual ownership can result in accepting a lower offer than desired.
   
   

Selling Before Buying:

Pros:

1. Clear Financial Picture: Selling first provides a clear understanding of your financial situation. You’ll know exactly how much money you have in your budget for your next purchase, which can prevent overextending yourself financially.
2. Stronger Negotiating Position: With the sale of your home completed, you are in a stronger position to negotiate on your next purchase. Sellers often prefer buyers who are not contingent on the sale of another property, making your offer more attractive.
3. Avoiding Dual Payments: By selling first, you avoid the potential stress and financial burden of making two mortgage payments or managing bridge financing.

Cons:

1. Temporary Housing: Selling before buying might necessitate moving into temporary rental accommodation (or moving in with extended family), which could be inconvenient and costly. This also means moving twice, adding to the overall hassle and expense.
2. Limited Time to Buy: Once your home is sold, you might feel pressured to find a new home quickly, potentially leading to rushed decisions and settling for a less-than-ideal property.
3. Market Fluctuations: If the market is on the rise, the time gap between selling and buying might result in higher property prices, reducing your purchasing power. During Covid when the market was rocketing up, this was exactly the situation, where sellers thought they had been smart selling first, only to find that waiting over 6 months to buy, meant they were getting priced out of their desired area.
   
   

Strategies to Navigate the Dilemma

Solving the buy-first or sell-first dilemma requires careful planning and strategy. Here are some practical strategies to consider:

1. Bridging Loans: These short-term loans are designed to bridge the gap between buying a new home and selling your existing one. While they come with higher interest rates, they provide the necessary funds to proceed with the purchase before your current home is sold. Get a mortgage broker to give you quote on the rates and how this might work for your situation.
2. Extended Settlement Periods: Negotiating an extended settlement period when selling your home can give you additional time to find and close on a new property. In NSW and VIC the standard settlement period is 6 weeks (42 days) while QLD it’s 35 days. As a vendor you could specify a longer time period (e.g. 3 months) to alleviate the pressure of finding a new home immediately after selling.
3. Lease-Back Agreements: This arrangement allows you to sell your home and then rent it back from the new owner for a specified period. This provides you with the proceeds from the sale while giving you more time to find and move into your new home.
4. Home Equity Line of Credit/ Redraw account: If you have significant equity in your current home, a line of credit, or redraw account, could provide funds for the deposit on your next property. This option typically has lower interest rates than bridging loans and can be a flexible financing solution.
5. Contingent Offers: While less attractive in competitive markets, making an offer on a new home contingent on the sale of your current one can provide a safety net. This way, you are not committed to purchasing unless your home sells. However, it is not likely that such an offer would be accepted by vendors in a strong market.
6. Renting as a Stopgap: If the market is highly competitive, or you’re unable to find a suitable property immediately after selling, consider renting temporarily. This provides flexibility and allows you to wait for the right home to become available without the pressure of immediate purchase.
7. Simultaneous Settlements: Coordinating the settlement dates of both the sale of your current home and the purchase of your new one can minimise the time spent between transactions. This requires careful negotiation and coordination with both buyers and sellers involved but in practice is quite difficult to get accepted.

In summary, the key determining factors for buying or selling first is the speed and competitiveness of current market conditions.

In general, if market conditions are normal or cool, that is, there is not a shortage of listings, price rises are slow and steady, auction clearance rates below 70% and the market looks set to have steady turnover the next 12 months, then I would personally sell before I buy. This would give me a certainty on my budget and motivate me to get started on the search for a new home.

Conversely, if the market conditions are strong or hot, meaning that listing volumes are very low, auction clearance rates above 70%, market sentiment is very positive and property prices are rising rapidly, I would recommend buying before selling. Under these conditions, I would be confident that I would not miss the market, secure my next home and be reasonably confident of getting a strong sale price.

The decision to buy first or sell first is highly personal and depends on your financial situation and your risk tolerance. Both approaches have their own advantages and challenges.

Working closely with a knowledgeable buyers’ advocate can provide valuable insights and assistance in navigating this dilemma. Whether you choose to buy first or sell first, the right strategy and support can lead to a successful and less stressful real estate experience.

And don’t forget to register for my coming webinar “Buy First or Sell First?” where we explore market conditions in more detail.

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