Buy first? Or sell first? It’s the classic real-estate conundrum

To buy a new house or sell your existing house first is the classic real-estate conundrum, but there are some key drivers you should be aware of that could help you work out what’s right for you.

For most people seeking a real-estate upgrade or downsize, selling first may be a less risky option. However, if you’re on a regular income and have enough equity in your existing home, you may be better equipped to secure the finance for your new purchase, giving you more room to move. 

Whatever your situation, it’s worthwhile understanding some of the key drivers when it comes to making the decision to buy first, or sell first. 

What's the market up to?

The best place to start is by looking at the current market you’d be buying into or selling out of. For example, what are the real estate trends in your state, city, town and suburb? 

The buyer’s market

In a buyer’s market there are plenty of houses for sale but fewer buyers around. 

Where supply outstrips demand for houses in your market, the result may be lower home prices and longer timeframes to sell. So basically, it might take you longer to find the right buyer at a price you’re happy with. 

When this is the case, some property hunters prefer to sell their existing home first so that it gives them a better understanding of their cash flow and financing before they buy their next house. 

The seller’s market

On the other hand, in a seller’s market there are fewer homes for sale, but lots of buyers looking to purchase. 

In these conditions, competition between buyers is greater, which can drive up demand and prices. Because of this, some property hunters choose to buy first because they’re more confident that they’ll be able to sell their existing home quickly, and for a price that they’re happy with. 

If you explore this option, make sure you double-check your financial situation. Where bridging or other finance is required, you may need to consider whether you can cover the period between when you purchase your new home, and your existing home sells and settles.  

The ’buyer’s market’ versus ‘seller’s market’ scenarios are general examples only. There are a lot of things to consider when deciding to buy or sell first, with market conditions being only one of them.  

Buying and selling in different markets

Things get a little more complicated if the market you’re selling in, and the market you’d like to buy into, are different. If this is the case, you may need to do some additional research to understand what impacts this might have on your decision. 

Your financial position

Even more important than market conditions, is your own financial position. 

When you need a little more certainty

Selling first will give you a better insight into your purchasing power. You’ll have a better idea of how much money you will have available for your next home. You’re also likely to have that money at your disposal for when you purchase. It also means that you’ll get a perspective on whether bridging or other finance is required. 

Buying first when you’re uncertain of your finances can be risky, as you’ll be relying on your existing home to sell when you need it to and for the price you want, which doesn’t always go according to plan. The pressure of having to settle the purchase of another property could push you to settle for a lower price on your existing home than initially planned.  

When you have room to wiggle

If you’re fortunate enough to have a regular income and enough equity in your existing home, you may not have to sell first, as these two things may assist you in securing the finance you need to go ahead and purchase. 

Your plan B

It’s always wise to have a plan B in case it takes longer to buy or sell than you first anticipated. 

Picture this 

Your home sells, with a settlement period ending on the 15th of August. You start looking for your new property and find the perfect little cottage, with a settlement period ending on the 30th of October. So, where are you going to stay for the period when you haven’t got a roof over your head?

Whether you decide to rent, or bunk with friends or family, you’ll have to move twice, once into your temporary accommodation and then again into your new home. 

In a situation such as this, you may need to factor in paying for rent, movers and any storage for the interim period. 

Now, picture this

You buy first and it takes six months longer than you initially thought to sell your existing property. You’ve now got two mortgages to cover … so how do you stay afloat throughout this period?

You might consider becoming a landlord and renting out your existing home. This comes with its own issues, but may help you manage the financial repercussions of any additional financing in the meantime.

Long story short, the most important thing about a plan B is to have one. 

Making the choice that’s right for you

Once you’ve weighed up your options, it really pays to talk to some experts. 

You can get advice from a local agent who has solid knowledge about your current and desired markets. Then, when you’re ready, you could talk to a home loan specialist. They can help you understand your equity position and your home’s estimated value. That way, you can make an informed decision that’s right for you. 

Learn more about buying your next home