Buy before you sell or sell before you buy, which is better?

When it comes to transitioning from one home to another, one of the biggest dilemmas for homeowners is deciding whether to buy a new property before selling their current one or to sell first and then buy. Each approach has its own set of advantages and disadvantages, heavily influenced by market conditions, financial stability, and personal preferences. Here, we explore the pros and cons of both strategies to help you make an informed decision.

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Buying Before Selling

Buying a new property before selling your current one can provide a smooth and seamless transition, but it comes with potential risks.

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Pros:

No Need for Temporary Housing: By purchasing a new home first, you avoid the inconvenience and cost of temporary accommodation. You can move directly from your current home to your new one without dual moving costs, storage costs, and the possibility of needing to break a lease or move in with family. Beware! Just because you’ve bought first doesn’t mean the person who buys your home will be willing or able to match the settlement exactly, so you should always still plan for some overlap.

Less Pressure: This approach allows you to take your time finding the perfect new home without the pressure of aligning sale and purchase settlement dates.

Market Advantage: In a competitive market where properties sell quickly, buying first ensures you have a home to move into without rushing. Right now, the opposite is true so always speak to a professional to gauge market conditions.

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Cons:

Financial Pressure: If your current home doesn’t sell as quickly as expected, you could find yourself juggling two mortgages simultaneously. This can be a financial burden for many homeowners.

Need for a Bridging Loan: Without the proceeds from the sale of your current home, you may need to seek additional financing, such as a bridging loan, to cover the new purchase. This comes with extra interest costs and fees.

Potential for a Lower Selling Price: To relieve the financial strain of holding two properties, you may feel pressured to accept a lower offer on your current home, resulting in a less favourable sale price. Additionally, if your sale price for your current home ends up being lower than expected, your new mortgage may be higher than you comfortably planned for.

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Selling Before Buying

Selling your home before buying a new one is a more conservative approach that can minimise financial risks, but it also has its drawbacks.

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Pros:

Know Your Budget: Selling first allows you to understand exactly how much money you have to spend on your next home, giving you more confidence in your purchasing decisions. This is particularly important in softer market conditions to make sure you haven't been too exuberant with the sale price of your current home!

No Need for a Bridging Loan: With the proceeds from your home sale in hand, you avoid the need for additional financing, saving on interest and fees.

Reduced Financial Stress: By not carrying two mortgages simultaneously, you can focus on finding a new home without the pressure of ongoing financial commitments.

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Cons:

Need for Temporary Housing: If you sell before finding a new home, you may need to find temporary accommodation, which can be both inconvenient and costly.

Market Pressure: In a competitive market, you might feel pressured to purchase a new property quickly, potentially leading to compromises or settling for a less-than-ideal home. In some case, if the market moves quickly you may experience price-gapping i.e. where your purchase price is relatively higher than it would have been had you bought sooner. This is especially prevalent in market conditions like we experienced during COVID.

Inconvenience of multiple moves: Moving twice (first to temporary housing and then to your new home) can be both physically, financially, and emotionally taxing.‍

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Key Considerations When Deciding

When deciding whether to buy before selling or sell before buying, consider these factors:

Market Conditions: The state of the real estate market plays a critical role in your decision. In a seller's market, where demand is high, buying first might be advantageous since your home is likely to sell quickly and for a good price. In contrast, in a buyer's market, selling first might be safer as homes take longer to sell and you will know exactly how much you have to spend on your purchase.

Financial Situation: Assess your financial capacity to manage two mortgages or a bridging loan. Consulting a financial advisor and mortgage broker can provide clarity on what is feasible and prudent based on your unique circumstances.

Risk Tolerance: Your personal comfort with risk should guide your decision. If minimising financial stress is a priority, selling first might be better. However, if you value convenience and have the financial flexibility to manage potential overlaps, buying first could work.

Contingency Offers: Some buyers make offers on new properties contingent upon the sale of their current home. While this can help mitigate risk, it may also weaken your offer, especially in a competitive market where sellers prefer non-contingent offers. This approach, especially in Sydney, is unlikely to be accepted by many sellers and whilst ideal, will not be practical.

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Conclusion

The choice between buying before selling or selling before buying is not a one-size-fits-all decision. It depends on your financial stability, the real estate market, and your comfort level with risk and uncertainty. By weighing the pros and cons and considering the key factors mentioned, you can choose the strategy that aligns best with your circumstances and goals.

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