Winter is Over! Structuring the move…

Buying and selling at the same time is stressful. If you accept this, it all becomes a little bit easier. If you carefully plan in advance it becomes easier again.

Buying in isolation is manageable. Selling in isolation is also manageable. However, buying and selling your primary residence at the same time, without proper planning and preparation, can cause you to lose tens of thousands of dollars. There is nothing more frustrating when analyzing both transactions than realising the errors you made, which could have been avoided.

When it comes to trading real estate, preparation trumps analysis.

Understanding the traditional trends in the market can assist you in anticipating the market. For example, each winter, the stock on market tends to be limited. Suddenly in spring, there is a surge in new listings. The surge in spring stock can soften prices by a few percentage points. If you buy in winter and aim to sell in spring, the environment can change quickly.

Clearance rates often suffer in spring. Conversely, the clearance rates are often at their highest in February, given the market has been starved of stock over the summer.

Plan of action

The Sydney property market has been booming for three years now. In this environment, there has been an understandable preference to purchase and then sell.

It will save time and angst if you are ready to go on the market before you purchase though. This means being ready to go on the market the day after you buy, literally.

A quick checklist of items that needs to be done prior to going on market will save you an enormous amount of time and stress.

  1. Prepare the house for inspections (‘last minute’ jobs can take a month)
  2. Have a solicitor/conveyancer prepare a contract of sale (this alone can take two weeks)
  3. Interview and select a real estate agent to handle the sale
  4. Get the photos and marketing in place
  5. Arrange any necessary finance approvals for the purchase and a possible bridging loan

Once these tasks are complete, buying a property in advance of selling will be more enjoyable. Not without risk, but at least you have minimised risk and preparatory time. You will have saved crucial time in advance. It would not be overstating it to say that these tasks are better if completed prior to even looking at any properties. You are then mentally free to fully focus on finding the right home.

Buy or sell first?

Very few people actually buy and sell on the same day. If you try to engineer this outcome, you are likely to increase your stress levels and decrease the chances of success.

In all probability, you will either buy before selling or sell before buying. Therefore, you are going to be buying under pressure or selling under pressure.

If you do buy first, that creates a deadline on the sale of your existing home. Selling anything under pressure is never advisable, particularly your primary asset.

If it happens that you sell first, you can always rent in the interim if you don’t find a suitable home. Whilst that may not be your preference, it is preferable to underselling your existing home or purchasing the wrong home under pressure.

Pressure can cause you to make decisions that you would not make in the cold light of day. That’s why it is crucial that you structure the move in a way that minimizes the pressure at every turn. The less pressure, to buy or sell, the better the decisions you are likely to make.

If you buy first, you are at the mercy of the market from that day on, until you have sold. Beware, property markets can turn quickly. This is why it’s crucial that you are ready to market the day after you have bought. Many people over the years who have bought in winter when stock is tight have been horrified at the sudden surge in competing listings come spring.

Even though you are unlikely to buy and sell on the same day, you can still settle both the sale and purchase on the same day. That should be your true goal when trading – to settle the sale and purchase on the same day.

The key to engineering this outcome is to use delayed settlements to your advantage during negotiations.

Regardless of whether you buy or sell first, negotiate a delayed settlement. You will have provided yourself with ample time to achieve the second half of your move, stress free.

The standard settlement in NSW is 42 days, which is what is inserted in most contracts. A delayed settlement would be somewhere between 12 and 16 weeks. As an example, if you bought a home and were able to list your home on the market the very next day, you have about 6 to 10 weeks to find a buyer. The reward for being fully prepared in advance has saved you 1 to 3 weeks in preparation.

In a soft market, you may want (& need) longer than 12 to 16 weeks.

A lot of people that have bought before selling overlook the fact that their buyer may then need a delayed settlement. Very quickly, a chain of transactions can form where one settlement is dependent on the next. A solution for many who buy first is to arrange bridging finance until their home sells and settlement has occurred. Bridging finance is a very avoidable product, if you take the time to structure the move in advance.

Bridging finance is best avoided for two reasons.

Firstly, it creates financial pressure on the sale, not just emotional pressure and stress. As you attempt to hold out for the right price, money could be rolling out the back door in the form of bridging finance. Due to the fact bridging finance is avoidable, any money you do pay in bridging finance essentially comes off your sale price.

Secondly, bridging finance decreases your resolve in negotiations. You want to sell the house and stop the bleed from bridging finance. Suddenly, close enough becomes good enough.

Structured right, you can save thousands of dollars when trading your primary residence. And saving thousands of dollars can be just as good as making it.

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