YOU’VE finally found that dream home you’ve been looking for, but there’s one small problem – you haven’t sold your existing home.
Buying before you’ve sold can be a risky strategy and goes against long-held convention to sell first and buy later, knowing exactly how much you’ve got in the budget.
But buyers advocate Richard Wakelin, of Wakelin Property Group, says buying before selling can make sense in certain circumstances.
WHEN IT WORKS
Buying before you’ve sold was a way to get ahead in a rising market, particularly in expensive inner-city suburbs, Mr Wakelin said.
He said it worked when buying and selling in the same market or similar property types or when selling in the inner city and buying in middle or outer suburbs that have not seen the same price growth.
‘There have been many markets that have risen in a sustainable manner and moved 5 to 10 per cent in a year,’ Mr Wakelin said.
He warned many people got caught out in rising markets, having already sold but unable to buy a new house due to the level of competition.
‘In a strong market, you can miss one, two or three properties,’ he said.
‘At the same time, the market is rising and it’s not until the number three property where they’ve stretched themselves well beyond what they’ve originally intended to spend that they actually nail the purchase.’
Mr Wakelin said it could take eight to 12 months to purchase in inner city suburbs such as Brunswick, Northcote or Carlton.
There’s plenty of legwork to be done before buying first.
‘You need to have a good look at the marketplace to determine what it is you’re going to buy and what it actually looks like and costs,’ Mr Wakelin said.
‘Set a very conservative estimate of value (for your existing home) and make sure your existing property is ready for sale.’
Mr Wakelin said the seasons should also be considered.
‘You don’t want to be caught in a situation where you’re buying at the tail-end of the spring market only to be faced with the market closing in January,’ he said.
WHEN IT DOESN’T
Buying is usually the easy part, it’s selling later where most come unstuck.
The key to judging whether it’s safest to sell first is the level of demand for your property and how long it takes to sell a typical home in your suburb.
In areas where it generally takes two to three months for a successful private treaty sale, selling first is the safest best.
Mr Wakelin said buyers had plenty of choice in Melbourne’s middle and outer suburbs, where there was typically lower competition for property. But he said that also meant sales could take months to finalise.
‘In general terms, anything that’s 30 to 40km out, you’re more likely going to be better off selling first to be absolutely sure that you know what you’re working with, dollar wise, and being aware that a property that you own is not going to be immediately saleable like an inner-suburban property,’ Mr Wakelin said.
‘There are cases all over the country where not everything is rosy, not everything is selling immediately and people with a particular property in a particular suburb are much better off selling first.’
CoreLogic RP Data Victorian housing market specialist Robert Larocca said some people preferred the more certain approach of selling before buying so they knew how much they had to spend.
‘The whole basis of selling before you buy is tacit acknowledgment that the sale process is not a certain one,’ he said. ‘You can’t predict exactly what you can get nor can you predict that you’re actually going to sell.
‘It might be that the time for your property and your suburb is now and in two months that market might have gone a bit soft.’
Sellers could seek long settlement terms or a rent-back option from the future purchasers, giving them more time to buy a new house.
The biggest risk of buying before selling was the need for bridging finance, Mr Larocca said.
Bridging finance is a short-term loan used when buying a new home before selling an existing one. A bridging loan can be six to 12 months (if your new home is being constructed) and can be paid out with the proceeds of the sale of your existing home.
But the longer it takes to sell, the more interest you’ll be paying on two properties.
‘What that means is you’re taking a risk that your bridging finance will cost you less than what you might make selling your home by selling it later,’ Mr Larocca warned.
‘I think home sellers and buyers have always got to walk that tightrope.
‘It is a risk and you have to make that (decision) in the knowledge that the costs of the risk is the bridging finance and you have to way that up against potential rises in sale price. That is just the word ‘potential’.’
Mr Wakelin said buying before selling could also leave sellers open to being seen as a ‘motivated vendor’ willing to accept a discount to ensure a quick sale.
‘The pressure is really on and often the real estate industry will apply that pressure knowing full well that you’re going to have to sell that particular property,’ he said.
Right price and position made it a quick sell
BUYING before they sold did not worry couple Lisa Matthew and Michael Joseph.
They bought their new Kilsyth home after a two-year search, adding a safety net clause into the contract that made the deal conditional on the sale of Ms Matthew’s existing home in Bayswater.
Their home was snapped up within two weeks of hitting the market.
‘I knew it would go straight away because it’s in that price range that’s affordable and it’s in a good central area,’ Ms Matthew said.
She said Harcourts, Boronia, wasted no time getting her Bayswater house on to the market.
‘We found out on Tuesday (that we had bought a house) and I think it was Thursday that we had a photographer in my house; the following Tuesday it was on the internet, and the following Saturday was the inspection,’ she said.
Agent Ben Schembri said 60 groups inspected the house, which sold for $565,000.
He said being close to Wantirna and appealing to a number of buying groups meant demand was strong for homes in Bayswater.
‘We’re finding across the whole City of Knox that there’s big demand because there are a variety of buyers,’ Mr Schembri said.