April 27, 2010
Buying and Selling Your Home: Here’s How and What to do First?
Should you buy your next home first or sell your existing home first?
This 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!
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 agents have 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 sellers 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 they tell you to get you to 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).
Here’s how many home sellers get 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 because they say, “your place will sell fast 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 around $30,000 to $40,000 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”. 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 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 take the first so-so 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 1 to 5% 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.‚Ä®‚Ä®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 negotiate for the nest price. This can easily cost you $10,000 to $50,000 (1 to 5%) or more depending on the value of your property.
2 Tips for those that do find themselves in the position of buying 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 3 month settlement and worse case scenario, you may have to lease a property for 6 to 12 months.
If the property you are looking to buy is worth about $1,000,000 and the prices rise 5%, then you could pay $50,000 more on your purchase price but remember you have a strong position having sold first and have a far higher chance of purchasing for 1 to 5% less than you are prepared to pay due to your powerful negotiation position.
In the event that you did lease for 12 months you will save $23,400 which also offsets your missed opportunity in capital gain.
Advantages of selling first:
* You have more power in the negotiation of selling your property. You have got a far better chance of obtaining that extra $10,000 to $50,000 (1 to 5%) plus on your 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 $10,000 to $50,000 (1 to 5%) 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 (which is most people at present).
* 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 about half the amount of money to lease an identical property off a landlord than it does to lease the very same property off a bank 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 7% means you would effectively leasing/renting your home from the bank for $63,000 per year plus you have to pay rates of about $2,000 per year totaling $65,000 for the year.
Now if you lease/rent the same $1,000,000 property from a landlord you will likely be paying about $800 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 $41,600 for the year. Which means you save $23,400 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.
Filed under Real Estate Market Update by Admin