Q: My family of four is fast outgrowing our two bedroom semi and with the recent news that another baby is on the way it’s definitely time to upgrade to a larger home. I’m just not sure what the best order to do things is. Should we sell or buy first, and what are the implications of each?
A: First off, congratulations on the news that you’re expecting another little one into the family. That’s wonderful to hear.
I believe it is a lot riskier to buy before you sell and generally I wouldn’t advise this option. But many people do.
There are different, and important, pros and cons to each and proper research and planning in advance can help you avoid some stress and financial pressure. Here are some pros and cons to consider when deciding whether to buy or sell first and what will be best for your family.
Often considered the ‘safer’ approach and generally more sensible in a buyer’s market, selling first has a lot of advantages, including:
- Knowing what your current home has sold for means you will know exactly what your budget is for the new home;
- Removing the pressure to sell and possibly accept a lower offer on your current home if you have already bought and want a guaranteed sale;
- Saving you money because you won’t need to pay off two loans at once;
- Not needing bridging or other finance to help you buy before you’ve sold; and
- Setting a settlement date to guide your next purchase (which you might be able to negotiate for a longer period to give you more time to find your next home).
On the flip side, some disadvantages of selling before you buy could include:
- Once you’ve sold you are out of the property market and it can be harder to get in than it was to get out;
- If the market is on the way up, property prices can rise in the time it takes for you to find your next home which could price you out or mean you’ve lost potential bonus capital on your previous home;
- You might be left without a new home when settlement comes around, so you’ll need to find somewhere for the interim and move twice, doubling your moving costs; and
- If you are looking for something very specific in your next home it might be hard to find or you could feel pressured to buy something that isn’t quite right.
Committing yourself to a new home before selling your current one is risky, though it may be more often done in a seller’s market when it ‘should’ be easier to sell than buy.
The advantages of buying first can include:
- Taking all the time you need to find and buy the perfect next home for your family;
- If the property market is on the way up, you could get more for your money by buying earlier and make more money by selling later; and
- Having a new home to move into removes the risk of having to move twice if you sell first which would be much easier with a young family in the mix;
Possible disadvantages to buying before selling include:
- Running the risk of overcommitting on the purchase price of your new home because you don’t know how much your current home sells for;
- Needing bridging finance, a deposit bond or to make other changes to your finances so you can afford to buy before you have the funds from your sale – which may be OK in the short term but can add up to a lot of money if it takes longer than anticipated to sell your other home; and
- Buyers may try to take advantage of your need to sell by offering a lower price which you might feel pressure to accept!
I recommend you speak with some local real estate agents in areas you live and want to buy in, to help you get an understanding of the property markets. If they are the same area, then that’s even easier. Our free Property Discounting Report will also help to give you an idea of where Australia’s buyer’s and seller’s markets are.
It’s also important to know what your home finances can withstand, and if it’s even possible for you to financially manage to buy before you sell. An accredited mortgage broker can help you do the sums, which might make your decision much easier.
Do you want to ask John a question? Submit it here and check back each Sunday to see if it’s been answered.
If you found this article useful please share it using the buttons below.