Another thought : Buying before you sell
Knowing exactly how much money you will have from sale proceeds to put
towards a new home is perfectly understandable, but not necessarily a good
idea. Let us put another strategy to you.
Glen and Sandra have lived in a middle suburb of Adelaide since they married
in the mid 1970s. They¹ve raised three children there and their home holds
But things change. Glen and Sandra are now semi-retired and the children
have left home. Their house is too large for their needs and they¹re tired
of maintaining the yard. They want to downsize and move to the inner suburbs
to be closer to their children and enjoy the cafe culture.
In keeping with conventional wisdom, Glen and Sandra want to sell their home
before buying the next. They want to know exactly how much money they will
have from the sale proceeds to put towards their new home. This is perfectly
What Glen, Sandra and thousands of others like them don¹t realise is that by
taking the ³safe² route and selling first, they could be creating more
problems than they solve.
Low-maintenance properties in the inner suburbs are hotly contested, and
there are seldom enough to meet demand. The couple are also going to live in
the property instead of renting it out, so Glen and Sandra are relatively
fussy about the features they¹re looking for. This means it may take them
six or 12 months to find the right home. If they sell their house first,
they may have to rent temporarily - meaning another move with all the
associated stress and expense.
Meanwhile, they have lost their foothold in the market but property values
continue to increase. With no way of accumulating equity, Glen and Sandra
are standing still, while the market moves away from them. This will make it
harder to afford the right home when they do eventually find it. A better
alternative for Glen and Sandra is to prepare their house for sale, but
delay putting it on the market until they have bought the next. Engage an
agent and prepare the marketing so, when the time comes, they are able to
put their home on the market with minimal delay.
At this stage Glen and Sandra should get a realistic indication of their
house¹s likely sale value from their agent. Now Glen and Sandra are ready to
search the market, knowing there is no time pressure to find the right
property. And they¹re still in the market, so they are continuing to benefit
from capital growth, which will give them more spending power.
After searching for some months, the couple will find the right property and
They don¹t want to miss out on the property just because they haven¹t yet
sold. At this point, they should negotiate the terms of sale with the
vendor. Most sale contacts specify a 10 per cent deposit with settlement in
60 days, but these are only guidelines and they can be varied. For Glen and
Sandra it would be best to negotiatea lower deposit to minimise the amount
they have to pay out of their own pocket. They should also ask for a long
settlement (at least 90 to 120 days) to give them ample time to sell.
Ideally, the couple should aim to settle both properties on the same day so
they don¹t have to take out bridging finance. Although they¹re asking for a
long settlement, they should include a clause in the contract enabling them
to settle earlier by mutual agreement.
Now Glen and Sandra can put their home on the market knowing there will be
Mark Armstrong and David Johnston are directors of Property Planning
Australia (see propertyplanning.com.au), which advises on property and
Seven steps to your next home
1. Keep a foothold in the market to maximise capital growth
2. Prepare your home for sale
3. Establish its likely selling price
4. Buy your next home
5. Negotiate favourable terms of purchase
6. Sell your current home
7. Aim for same-day settlement to minimise hassle and expense.
Karen Raffen, CEO