In an ideal world, you should have no problem in selling and buying property simultaneously and you finalise all the paperwork on the same day. However, this doesn’t happen a lot.
What actually happens is that people have to purchase first and sell second, which comes with the risk of paying two mortgages, or sell first and purchase second, which can force the homeowner to sell very quickly, move out just as quick, and accumulate thousands in rent.
However, selling and paying at the same time does and can happen. The key is you have to be proactive to achieve this goal. And you also need to ask Lady Luck to smile upon you.
Here are some tips on how you can buy and sell simultaneously:
1. Evaluate the market
The market situation will not change your objective of buying and selling at the same time, but it will impact how you go about achieving it.
The general recommendation when the market is strong is that buy first and sell second. This will allow you to buy at a lower price and sell at a higher one. During this time, there is also less chances of you failing to sell your property because it is a strong market.
When you purchase first, you can have the time to decide what property you want to purchase. However, if you are unable to sell your home before you can buy a new one, you will be paying two mortgages every month. And if you sell at a lower price, you can end up seriously out of pocket. This is the reason why some agents suggest floating your property off-market first, to assess how much it would sell on a much later date.
But in a downturn, the general recommendation is to sell first and buy second. This eliminates the risk of you paying two mortgages and also minimises the pressure of you accepting a bad offer, and gives you a set budget for your new home. However, you might have to rent while you search for your new home, or hurry your purchase to prevent this from happening.
2. Lengthen the settlement period
The best way to boost your chances of settling at the same time is by extending the settlement periods. However, this will depend on the other party’s flexibility.
To further explain this, selling first would require you to persuade the buyer to acquiesce to an extended settlement as a condition of the sale. Three or four months should be adequate, as six to eight weeks should be enough time for you to find a new home and six to eight weeks to sign contracts and settle.
However, if you purchase first, your offer would need to be subjected to an extended settlement period, which may not benefit the seller, particularly if they had already purchased a home and have to sell fast.
3. Add “subject to completion of sale” to your offer
If you like to take a little risk, or simply unable to settle the sale and purchase of a property at the same time, add a condition of “subject to completion of sale” to your offer.
This condition in your contract means your offer will only become binding when you have sold your home. Simply put, you are not required to settle on the home you agreed to purchase until you have settled the sale of your new home.
Remember that this needs quite a bit of negotiations to arrange, as it can hinder the seller from purchasing another property.
4. Secure bridging finance
If you purchase first and have difficulty selling your home, you probably need to obtain a bridging loan. Usually interest-only, this is another loan that you obtain in addition to your existing home loan to allow you to pay for two mortgages at the same time.
To qualify for the loan, you usually would require a fair amount of equity in your present home. Because of this, you have to talk to your lender whether you qualify before purchasing a new home.
Compared to regular loans, bridging loans typically have higher interest rates, but you can save this way because the total expense of two moving days and a few months’ rent for your temporary home is often higher than the additional interest you would pay for two home loans.