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Buying or selling: what should you do first?

18 Jan 2016

With the competitive environment surrounding today’s real estate market, some homeowners who have decided to move to another property may find themselves asking whether it is best to first sell their existing property, or find another home before they sell their current one.

Goslett says homeowners must ask themselves whether it would be better to sell first and possibly not have accommodation to go to, or buy first and have two bonds to pay until the one home is sold.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says with high demand and low inventory, buyers need to move quickly when they find a property that they really want. For some this may mean putting in an offer while they still currently own another property.

“The answer to whether homeowners should look to buy first and sell their current property later, or sell before looking at other homes, will largely depend on their personal circumstances and unique situation,” says Goslett.

“There are a few aspects that first need to be considered and will influence the homeowner’s decision. These factors include the financial options available to them, local market conditions and, of course, the homeowner’s feelings about moving more than once should they have to vacate their current home before the new home is available.”

Goslett provides three considerations that homeowners need to bear in mind before making their decision:

1. Finances

Only a small percentage of buyers are able to purchase a property for cash, while most are reliant on banks to obtain the necessary finance. What this means is that home buyers who are upgrading to a larger or more expensive home may need the equity from the sale of their current home as a deposit. 

“In the instance where the sale of the owner’s current home needs to happen first, they could sell the property and then negotiate with the new owners that they rent the property back from them until they find a new place,” says Goslett.

“This will depend on how eager the new owner is to move into their new home, and the previous owner will be required to pay occupational rent.”

He says another option would be for the seller to find temporary accommodation with family members or friends, or at a short-term rental. In this instance storage facilities may also become a necessity.

From a buying perspective, Goslett says the purchaser should be researching properties that are available in the areas they want to buy in, looking at all aspects of the neighbourhood and elements that may have an influence on their decision.

According to Goslett, sellers who would like an advance on their home equity can opt to have the money bridged before the sale of the home is concluded. The bridging finance will be based on the equity available in the property, the seller’s credit record and the expected cash inflow.

He says while having the equity readily available is a pro, the con is that a temporary living arrangement could force the buyer into making a faster decision than they perhaps should.

It is important that the buyer takes the time to find the right home that fits their criteria. With stock shortages a reality in today’s market, it could take more time than initially anticipated.

“Perhaps the optimum decision would be for the homeowner to stay in their current home while looking for another property. They could then make an offer to purchase their next home subject to the sale of their current home going through,” says Goslett.

“This way they have time to do their research and find the perfect home that fits all their criteria before making a move.”

If the homeowner is in the rare position of not needing the equity from their current home, to obtain finance for an additional property, they still run the risk of being stuck with two properties.

While this could be fine as a short-term solution, Goslett says it may not work for the homeowner on a long-term basis. In this instance the homeowner will need to have a contingency plan in place.

2. Local market conditions

While there are external factors that impact the property market in general, Goslett says most areas will be uniquely affected by their individual circumstances. Aspects such as the type of home, price range and availability of other similar homes in the area will all have an impact of the sale of the property.

“A real estate professional will be a valuable source of information when it comes to researching the specific factors that influence the property market in a particular area,” says Goslett.

“The agent will be able to provide the homeowner with insight into how long homes are sitting on the market for on average, and how much they are selling for. This information will be vital when gauging time frames and possible equity expected from the sale.”

On the opposite end, from a buying perspective, the purchaser should be researching properties that are available in the areas they want to buy in, looking at all aspects of the neighbourhood and elements that may have an influence on their decision.

3. Risk and emotion

Regardless of whether the homeowner decides to sell first, or buy and then sell, each option brings with it an element of risk, says Goslett.

For this reason, homeowners must ask themselves whether it would be better to sell first and possibly not have accommodation to go to, or buy first and have two bonds to pay until the one home is sold.

“Although there will be an emotional element that drives the answers to each of these questions, ultimately the answers should be based on the financial options available, along with the local market conditions,” he says.

“Either way, the homeowner will need to be prepared and have a plan in place to deal with the consequences of each scenario.”

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