WHILE buying your first home can be a nerve-wracking experience, buying your second (or third) isn’t much easier.
First-home buyers may face a whole bunch of barriers, but the stakes can feel pretty high for people who are looking to upsize, downsize or just move house because of family circumstances or job changes.
In many ways, the process is the same. You need to write your wish list – where the property is, what size it is – and think about how much you want to spend.
This is where the buy first or sell first conundrum comes in, because it’s much easier to figure out how much you have to spend if you have already sold your first property. A property is only worth what someone is prepared to pay for it at the time that it’s for sale. It’s unwise to hedge your bets solely on an algorithm-generated valuation, the back-of-an-envelope calculation or recent rating valuations.
Selling first means you have freed up any equity and you have a firmer budget to work with. However, in a slow market it can mean that you are left scrambling to find the one. Even if you do find the right property, it can take longer than you might anticipate to reach settlement on it, which means you may have an unspecified period between exiting your last home and moving into your new one. This can be particularly tough for people with children and pets, especially in an area or at a time of year when there is a lot of competition for short-term rentals. If you do sell first, it’s a good idea to try to negotiate a longer settlement period to give yourself a bit more breathing space. Ask your real estate agent and lawyer for advice on how to do this as, because you’re the seller, you get to set the terms and conditions for your sale process.
Buying first makes sense in lots of ways, particularly if your search area is very defined. If a property that ticks all the boxes comes on the market it can be hard to resist the pull of putting an offer on it. If you decide to go for it, you’ll need good financial advice and nerves of steel. If your offer is accepted you may find yourself in the position of owning two properties – and having to service their respective mortgages if the settlement dates don’t align perfectly. It can feel like an eternity while you wait for your first property to sell, and if the market suddenly slows it can be tempting to take the first offer you receive in order to get the place off your hands.
Before you do anything rash, talk to your lender or a mortgage broker about what your options are in this situation. You are likely to need bridging finance to cover your offer on the new home – depending on your circumstances and the method of sale you may need access to these funds quite quickly. Be aware that owning two homes will also have insurance implications – you will need both to be covered.
If you are planning to buy first, you can make the sale of your existing property a condition of your offer. While this takes the pressure off, it may also make your offer less attractive to a seller. A good compromise may be to try to negotiate a longer settlement when you buy the new property, which will give you more time to sell. Talk to the real estate agent selling the property to find out how you can negotiate this in a way that the seller will be happy with.
There’s no perfect, one-size-fits-all solution in this situation. Perhaps the best advice is that if you are starting to think about buying, it’s a good idea to get your property and your finances in order. Talk to your lender or a mortgage broker and give them an indication of your plans. Start talking to real estate agents in your area to find out what might be coming on the market, and ask them for an assessment of demand for a property like yours. Tackle all those jobs around the house that need doing – trim those overhanging branches, replace the broken letterbox and repaint the scratched front door. At the very least, doing this will make it a pleasant place to live while you figure out your next move.
For independent advice on buying or selling property, check out www.reaa.govt.nz