SELL OR BUY FIRST IN THE CURRENT AUCKLAND MARKET?
Thinking about climbing the Auckland property ladder or downsizing and wondering whether you should:
- put your home on the market and then go hunting for your dream home?
- search for your next home first and once secured, put your current home on the market?
This is a common dilemma faced by 85% of homeowners looking to buy their next house regardless of their reason for moving. The ‘nirvana’ for everyone going through this process is this:
- Sell at the highest possible price in the neighbourhood
- Buy the next house as cheaply as possible
- Have the settlement occur at the same time (preferably if the furniture move by themselves!)
Unfortunately, we live in the real world which isn’t perfect. There is NO ‘one size fits all’ solution
I will explore the advantages and disadvantages of each option, and make some observations given the current state of the market. Hopefully, you will be able to make a better decision!
Option 1: Buy First and Sell Second
You can take your time to search for your dream home and avoid having to settle for a house that’s less than perfect.
If you see a house that you like and which is going to auction, you can request a side agreement that (if accepted by the vendor) would allow you to settle 3 months (or more) from the date of auction. This should give you plenty of time to sell your house.
If the house you like is selling via negotiation or with an asking price, then you could put in an offer conditional on the sale of your house. This is obviously going to make your offer less attractive to the vendor of the house you are trying to buy. It all depends on whether you are up against other buyers and whether the seller is happy to wait for your house to sell. Often, there is a ‘cash-out’ clause inserted for the benefit of the vendor. You might still end up having to bear a bit of risk if the vendor exercises the cash-out clause in light of a back-up offer.
A standard ‘cash-out’ clause will entitle the vendor to request that you go unconditional within a specified amount of days if a better offer has been received by him/her. If you do not go unconditional, then your contract to purchase falls through. In such a case, you will have to look for another home while your house is on the market.
The market you bought in might be different from the market you are selling in. In the current market (read the latest market reports here), property prices are actually relatively stable, and while this means sellers (especially those who are not buying another) may not be too thrilled, the lack of volatility actually makes it easier for everyone else to plan for the future.
The fear with this process is that you might have bought in a seller’s market and have to sell in a buyer’s market. If such a thing happens, and your property sits on the market for long, you will be faced with the pressure of having to meet a deadline (and might have to sell for less than you would like).
Bridging finance may be difficult to arrange (and costly) should you go unconditional on a house but could not sell your home by settlement date. You might end up having to service two mortgages at once, which is definitely not ideal. Best to start speaking to your banker or mortgage broker early rather than simply wait and hope for the best.
Also, don’t overlook insurance implications – you will need, as a condition of your mortgage, to have insurance cover over both properties.
Always prepare for the worst, hope for the best! After all, if you fail to plan, you plan to fail.
Option 2: Sell First and Buy Second
Financially safe – that way you know exactly how much you have to spend. You will be all cashed up, confident and can make cash offers which are attractive to vendors and could possibly secure you a good deal. Everyone loves cash offers, especially in a market with a high inventory (although this is not what we are observing in the ever-popular Eastern Suburbs) and limited demand.
You can also assess the demand for your property and price it accordingly based on market feedback, rather than being driven by the need to settle within a specific timeframe for the other house. In other words, you have time to sell for the maximum that you can get.
You will have to restrict your selection of properties to those that are on the market and go hunting with a looming deadline.
If you don’t find another place before your house settles, you might have to move into temporary accommodation. This means having to move twice and I have yet to meet someone who told me he/she enjoyed the process of packing and moving (handy tips here).
It will also be tough for families with children and pets (the latter because many rentals don’t allow pets (for now)). However, this can be mitigated if you can specify a longer settlement to give you time to find your home. Alternatively, you could possibly negotiate a short-term rental with the buyer of your current home.
Handy Tips for Today's Market
In the current market where prices are stable and houses in general may be taking a longer than expected time to sell, it may be a better idea to sell first before buying so that you are in a cashed up position to make your next move. This is especially so if you own a house that might possibly be difficult to sell for the price you ideally want. This could either be because it is a development site (and developers are few and far between these days with banks tightening up on lending and the plethora of choices available for developers) or that your house has certain issues (leaky features, unconsented areas etc) or that your house has some quirky features.
Circumstances whereby you can buy a house before selling
- You are in a Seller’s Market. In this market, which we last saw in 2015/2016 where houses in St Heliers, Glendowie etc were selling like hotcakes, houses sell within days of hitting the market. Hence, there is little risk in buying first and selling later as your house is generally going to be snatched up pretty quickly. In fact, buying first will at least guarantee that you have a house and that you are not out of the housing market.
- Your Found Your Dream Home. If you have very specific requirements that you know are difficult to meet (good school zones, perfect layout, outdoor BBQ, large pool etc) and after watching the market for a year or more and you finally see a house on the market that ticks all your boxes and more, you might be tempted to push for it. This is an emotional decision. However, if this is clearly what you want, then go for it. It’s not often that people can find a house they love and can afford.
- The Deal Is Too Good to Keep Waiting. Sometimes, a good or even great deal turns up in the marketplace. This is usually in situations where the sellers need to dispose of the property quickly, for a variety of reasons. In this case, you may be able to negotiate a good deal and the money you make closing this deal is worth selling your house after.
- Your Own House Is An Easy Sell. If, after speaking to a few real estate salespersons, you know that your house is going to be very popular with the masses AND you have a realistic price expectation, then buying first and then selling later is not that huge a risk.
So What Should I Do?
At the end of the day, whether to sell first or buy first is a personal decision (1) driven by your circumstances, risk appetite and motivations to move and (2) shaped by the market (which real estate salespersons like me can help).
Do you prefer:
- the certainty of knowing how much you have to spend (sell first)?
- the certainty of knowing where you will be moving to next (buy first)?
Regardless of whether you plan to sell first or buy first, get your own house in shape and ready to sell. This is so that if circumstances dictate that you buy first, you are prepared to put your house on the market and not need to wait for any renovations to be completed. The fact is there is no perfect time to buy or sell as you will likely buy and sell at the same phase of the market (if you act fast enough and there are no major external events).
Regardless of whether it is a stable, rising or falling market, you will benefit in some way and lose out in others. Just don’t get too stressed into not taking any action because you fear mis-timing the market. And a great salesperson will be able to help you maximise the sale price of your property.
Another option is to consider your financial position (a broker can help), and whether it is financially viable to keep the existing home as a rental. Note, however, that many homes in the Eastern Suburbs may not necessarily make good rentals and deliver a decent yield (assuming this is what you are concerned with).
Finally, consider speaking to friendly real estate salespersons to obtain up to date information about what’s selling (or not) in your immediate neighbourhood (surrounding streets) and the areas you are looking to live in. This allows you to get a better feel of your competition. I promise I will not spam you and will only provide helpful, relevant information.