Here is a question many home sellers are faced with, but what is the best option?
1. If you buy first you may get caught financially paying 2 mortgage repayments and it’s uncertain for how long or worse, you may under sell your property by up to 5 to 10% on your sale price due to the pressure! In many cases you can easily expect to undersell by $20,000, $30,000 or $50,000 or more and this is after tax money. How long would it take you to save this much money?
2. If you sell first the fear is you may not have anywhere to go!
But there is much more to consider if you are to succeed at the best outcome for yourself when you make your next move.
You are about to get all the information you need to be able to make an educated decision for yourself about whether to buy or sell first. But before we get into this we do need to address what most agents will suggest you should do and why.
If you ask most agents, they will encourage you to buy first but the agent has a hidden agenda (as you will discover) and they may not be taking into consideration your requirements or giving you all your options.
Why do many agents advise home sellers on buying first?
Well firstly it means the home seller will be more motivated to sell, making the process for the sale (and getting the commission) easier for the agent. If a home seller is highly motivated to sell, the agent knows all they have to do is get the listing (your property signed for sale under agreement) and they have an almost guaranteed commission coming. Regardless of what price expectations they tell you to expect once you sign their “standard agency agreement” (be careful not to get locked in for more than 50 days, you can always extend the agreement if you are happy) the price and or offers often begin coming in lower and sometimes, much lower.
Here’s how many home sellers hire the worst and dishonest agent.
The home seller has been speaking with a “Nice” agent, one they get along with. This agent advises them to buy first by saying, “your place will sell fast and for a great price because there are so many buyers at the moment”.
The home seller buys their next home and the “nice agent” tells them or gives the impression that they will probably get much more than their property is really worth. Plus the agent gets you to spend more on advertising saying “this will give you an even better chance of getting the highest price”, and because you are now under pressure, you are more likely to go with it.
If the home seller commits to spending a substantial amount on real estate advertising (this also increases the sellers motivation to sell and helps the agent promote themselves to more potential business, where they can do the same thing again with other potential sellers).
What happens next is usually a series of low offers (lower than the price the agent first suggested or eluded that the home seller should expect) and this helps condition the home seller to lower their often high price expectations that were confirmed by the agent prior to giving the agent the business.Remember the agent is still that “nice agent” you always knew, it’s just that the agent knows how the game works and how to do this to you without you suspecting anything.
Due to the home seller being under pressure to sell, they often take the first “good enough” offer that comes along and this is where the agent gets what they want (the commission) far easier than normal and the seller loses financially on unnecessary advertising investments (up to 1% of the property value) and even worse possibly up to 5 to 10% less of their potential selling price.
Now let’s take a look at all the facts you need to know to be able to make an informed decision about what is right for you and your buying and selling objectives.
Advantages of buying first:
* You have the peace of mind of knowing where you are going.
Disadvantages of buying first:
* You don’t know how long you may have to carry two mortgages for (this could be stressful and waste thousands of your hard earned after tax dollars).
* You will be more motivated to sell. This is where the real financial loss can occur because you are more likely to accept a lower offer than wait a week or two to negotiate the best price. This can easily cost you $20,000 to $50,000 (5 to 10%) or more depending on the value of your property.
* You are more likely to be at the mercy of the buyers settlement terms because you may NEED to make sure you have your place sold.
2 Tips for those that do find themselves in the position of having to buy first:
* Try to negotiate a longer purchasing settlement (say 90 to 120 days)
* Try and negotiate with your financial provider to give you relief of some sort during the double mortgage period.
Disadvantages of selling first:
* You may not find another property to buy during your settlement period and worse case scenario, you may have to lease a property for 6 to 12 months.
But remember you are in a strong position having sold first and have a far higher chance of purchasing for 5 to 10% less than you may be prepared to pay due to your powerful negotiation position.
Many people think of renting as dead money but most people are either renting a property from a landlord or renting with borrowed money from a bank by way of interest repayments. If you have a high equity position then your money in the bank will provide income and often times you can rent a property from a landlord for much less than the cost of interest required from a bank for the same property.
Advantages of selling first:
* You have more power in the negotiation of SELLING your property. You have got a much better chance of obtaining that extra 5% to 10% which can equate to $20,000 to $50,000 or even more on your final sales price.
* You have a stronger position of power when it comes to the PURCHASE of your new home and there is a better chance of being able to negotiate $20,000 to $50,000 (5 to 10%) off the price of the property you purchase, especially if you are buying off someone who has already purchased and is highly motivated to sell.
* Because properties are in demand you have more power to negotiate a longer settlement on your sale, which will give you more time to find your next home.
* If you do have to lease a property until you buy you will find that it costs less to lease an identical property off a landlord than it does to lease the very same property off a bank (by paying interest) and you don’t have to pay rates or maintenance.
So to put this into perspective for a property worth $1,000,000 you would need a minimum of $100,000 deposit plus stamp duty of $40,475 totaling $140,475 and then you would have to pay the bank interest on your loan (lease/rent) of $900,000 at 6% means you would effectively leasing/renting your home from the bank for $54,000 per year plus you have to pay rates of about $2,000 per year totaling $56,000 for the year.
Now if you lease/rent the same $1,000,000 property from a landlord you will likely be paying about $900 per week to live in this property and you don’t have to pay rates or maintenance. So to lease this property from a landlord you will be paying $46,800 for the year. Which means you save $9,200 because the government is subsidizing the landlord with negative gearing.
* If you do decide to lease/rent for 6 to 12 months, you have more time to find that perfect property instead of settling for the first “so-so” property that comes along.
If you have found this information helpful and informative or if you would like to discuss all the options which makes the process even less stressful and more successful financially and emotionally please feel welcome to contact us by calling our office 24 hours a day on 1300 THE OZWAY (1300 843 699). Alternatively you can complete the webform below to arrange a obligation FREE consultation: