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Advice

Should you buy or sell first?

Should you buy first and then sell, or sell first then buy? This is an age-old conundrum most vendors face. Unfortunately, the answer isn’t always simple, as there are many factors to consider.

First things first, the decision to buy then sell and vice versa should take into account the market. As a rule of thumb, property professionals tend to advise to sell first in a buyer’s market and buy first in a seller’s market.

CEO of Belle Property and Hockingstuart, Peter Hanscomb, shed some light on this rationale, “When demand outstrips supply, buyer competition is tough, houses sell quickly, and vendors that wait to buy can be left without somewhere to live as well as the associated costs.”

“This is evident in the current seller’s market, where we are experiencing low days on market and above average clearance rates, which combined with other factors like increased internal migration are perpetuating stock shortages across Australia,” Peter said.

At the time of writing, total combined stock across all capital cities is down 3.2 percent year on year, and the combined capital city auction clearance rate is 70 percent, compared to a five-year average of 64 percent. In addition, Australian properties were taking 29 days to sell (in the three months to October 2021), versus 39 days over the same period in 2020.

Australia is also experiencing a shortage of rental properties, particularly in regional areas. The national rental vacancy rate was just 1.6 percent at the end of October 2021. This number dropped to less than 1 percent in regional areas like rural Queensland, the Blue Mountains in New South Wales and south-west Western Australia.

To add another layer of complexity, house prices across the country have risen 22.2 percent over the past 12 months. Taking all these factors into account, vendors that choose to wait to buy in a seller’s market run the risk of not only being displaced for an interim period but potentially being locked out of the market due to increasing housing prices.

There are, of course, negatives to the buying before selling scenario, too, most of which involve finances. For example, those that choose to buy before they sell are typically subjected to double mortgage, tax, insurance, and utility payments, as well as expenses.

In a nutshell, the advice is to buy first in a seller’s market to avoid being displaced or locked out of the market. Buying first is also considered to be a good idea for renovators or downsizers for the apparent reason that holding onto a property provides a comfortable home base while work is completed.

The reverse, selling before buying, is favoured in a buyer’s market, where moving options are plenty and finances are more straightforward. This scenario also helps vendors-come-buyers gain a more complete idea of their budget moving forward.

As you’ve just read, there are pros and cons to both scenarios; however, as the real estate industry rapidly evolves, clever strategies are being adopted to make the market work better for vested parties.

Peter Hanscomb explained, “Historically, settlements typically spanned a six-week timeframe; however, many of our clients are now asking for extended settlement periods of three and even six months.”

“Leaseback arrangements are becoming more and more commonplace too, providing the seller with increased flexibility to find a new property and the buyer with an income to cover the new mortgage while they do so,” Peter said.

“Creative strategies, like ‘sunset clauses’ and ‘contemporaneous settlement clauses,’ are also being put in place to provide conditional parameters around settlements that help move parties from one property to another in the least disruptive way possible.”

When working out what scenario to choose, it’s essential to key a watchful eye on the market, obtain a thorough understanding of your financial situation, and enlist a trusted real estate agent to develop a plan of action that works best for your circumstances. 

Contact your local Hockingstuart office today for more information about the pros and cons of each scenario and support to help you determine timing and strategies.