Should You Buy Or Sell First?
Whether to buy or sell first is one of the most common questions in real estate.
It’s also one of the toughest to answer. Now COVID-19 has added a whole new element to this property dilemma.
So if you already own property, and are looking to sell and buy again, we take a look at the case for buying first and selling first during the coronavirus pandemic, to help you work out which approach suits your personal circumstances.
The case for buying first
Generally, the argument for buying first is that it gives you more control over the property you move into. That’s because you’re not under time pressure to choose but can take your time waiting for the right property to appear on the market. With no deadline looming and no need to go out into the rental market, you can also give yourself greater negotiating power.
There are downsides too. One of the biggest is that you have to be in a strong financial position to buy first. Unless you can sell quickly and arrange a simultaneous settlement, you’ll usually have to take out a bridging loan. These aren’t just expensive, they can also be difficult to qualify for if you don’t have substantial equity in your home.
Another disadvantage is that property prices may fall between when you buy and when you sell. This can leave you in a weaker position and, if you’re financing your purchase with a mortgage, may mean you need to borrow more money than you’d hoped to.
Buying first also usually works best in a rising market because you lock in today’s prices on what you’re buying but can potentially then sell your home for more than you’d get right now.
The case for selling first
The usual argument for buying first is that it lets you know exactly how much you have to spend on your next home. After all, you’ll have the money in your pocket (or at least coming into your pocket on settlement) and that can help set your budget when it comes time to buy, removing the risk you’ll overspend.
Selling first can be a great strategy in a slow property market because it gives you the chance to lock in today’s prices on your own sale and then take advantage of them falling by the time you buy. It also gives you the certainty of knowing your property will sell and you won’t be left holding two mortgages.
Of course, there is always the risk you may find it difficult to find your next property and could even be forced to rent for a while until you do. And, if the property market were to rise after you’ve sold, you may not be able to afford as much as if you’d waited.
How the coronavirus has affected the buy first-v-sell first debate
COVID-19 has impacted the Eastern Suburbs property market in interesting and perhaps unexpected ways. When it first struck, we were faced with a situation where stock levels fell dramatically. Prices, however, have remained stable. Now, there’s more stock coming onto the market but it’s still in reasonably short supply. There are also more buyers looking to make a move.
That said, in a recession, we’d usually expect prices to fall. One reason they haven’t so far is that record low-interest rates make it easier for homeowners to meet their mortgage obligations. Another is that the government’s JobKeeper wage subsidy and generous bank policies on mortgage repayment holidays mean few people to date have been forced to sell up. That may start to change in October when these policies end.
At that time, we believe we may find ourselves in a different set of market circumstances, with some people potentially looking for a quick sale.
Even if that doesn’t happen and the economy recovers quickly, we don’t expect to see a white-hot market until at least the end of this year.
For these reasons, we’re seeing many people leaning in favour of selling first. Having the cash upfront from your sale will put you in control, especially as we think we’re likely to see more properties come onto the market this Spring and beyond.
How to take the risk out of selling first
If you’re considering taking this approach but are worried about the risk of not being able to find a property you like, we recommend having your solicitor write a long settlement period into the contract for sale. If your buyer has to sell their own home this will give them the time they need to get the property onto the market and get the price they want. Lately, we have seen buyers and sellers agree on settlement periods of up to six months.
If you’d like to know more about buying or selling in Sydney’s East, please get in touch.