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Selling before buying vs buying before selling

What should I do first?

Selling before buying or buying before selling.

Both of these methods have their specific pros and cons but your financial capabilities determine the best method you will choose.

Buy before you sell

If you have the financial capacity this is the best option as you will be in a position to make an offer on a property without having to sell first. Unfortunately, this is rare for a majority of people as they cannot afford both mortgages at the same time. As a result, it is possible to include a “subject to sale” clause in the offer. On paper, this may look like a great idea; but unless you can afford to keep both mortgages for a little while, there are really no benefits in doing this.

Uncertainty always looms large in any subject sale offer as it’s impossible for you to predict how long it will take to sell the “subject property”. Therefore, it should come as a little or no surprise if the vendor of a property you wish to purchase from insists on including a 48-hour clause.

This simply means that the vendor will continue to market and promote his or her property as if there was no offer.

In other words, vendor will continue to have viewings and home opens. If the vendor receives an offer from another buyer, they can accept it but will give you a period of 48 hours to make your offer unconditional. The new offer can be subject to anything including finance (may be of a lesser value).

Any offer that is subject to sale of your property is not an attractive offer. If multiple offers are written at the same time on a property and one is subject to sale but with a higher offer price, it is more likely that the vendor will choose the lower offer because there is less risk involved.

Why sell before you buy?

Listing and selling your property before writing an offer on a new property is recommended. However, a lot of work is involved to make it a success.
image of keyIt’s essential that you fully understand your financial position in details. Speak to your mortgage broker or bank about how much you owe on the existing home and how much you can borrow. The next stage is to select your preferred real estate agent who will give you a clear idea of your existing property’s worth. When you look at the sales prices, it is important that you know how much it will cost to sell the property (if it is an investment property, you need to factor capital gains tax as well). It’s worth noting that the same thing happens when looking for a new property. There are also transaction fees such as stamp duty and settlement fees.

Once your property is on the market, you can attend home opens searching for the perfect home, but as described above, there is no point in writing offers yet. However, when you receive an offer on your property, you can do a few things:

  • Long settlement
    Always ask for a long settlement. Normally, the settlement period is usually 21 – 28 days, once finance is unconditionally approved, but the settlement period can always be negotiated. Consequently, ask your real estate agent to negotiate either a long or a flexible settlement period since some purchasers are never in a rush to move in. However, to ensure a successful sale, the finance period should be short.
  • Rent back
    Why not become a tenant in your own home? This option may be open to several purchasers. However, to make this private rent back agreement a success, make sure it is included as a part of the “Offer & Acceptance agreement”. You should not agree to the sale first and then a couple of days later start negotiating the rental agreement (this can be considered unprofessional). Again your real estate agent or settlement agent should be able to help you with this.
  • Subject to offer being accepted on another property
    Sometimes, to remain on the safer side, it is possible to set settlement as subject to you having an offer accepted on another property. However, this makes the settlement date vague. Additionally, this should not be forced on any purchaser as this could be a deal breaker (a purchaser does not have the freedom to close the deal and may feel “used” as you play it safe).
  • Short term accommodation
    This is where you move in with your family and friends to a rental property for a short period of time. Despite this being not an ideal solution, it is a far better option that having to agree to a subject to sale condition.

You can start writing offers on your future property once a potential buyer makes an offer on your property. More often than not, you are less likely to be counter offered within the 48 hour clause. However, to protect yourself, make sure that a successful settlement of your existing property is included as a special condition (when writing offers for your future property).

Readers should always seek their own independent advice prior to making any decisions regarding property or finance

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About Mavin Real Estate

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Rasmus
Rasmus Nielsen is a Perth based real estate specialist. When not helping his clients buying and selling properties Rasmus is kept busy with his young family and occasionally can be found playing a game of golf (usually in the rough). For more info view his profile here

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