Buying or selling a house can be a rather scary experience. But the "what-ifs" can become overwhelming when you try to buy and sell at the same time.
- "What if I buy a new house, but my old one doesn’t sell?"
- "What if I sell my old house, but can’t find a new one?"
- "What if I can't get a home loan?"
- "What if my buyer doesn't get mortgage financing?"
- "What if the occupation dates don't correlate? Where would we go with all our stuff?"
- "What if I go totally cRaZy before this is all over?!"
Unfortunately, most families in South Africa would have to sell their current home to be able to buy new a one. And many folks buy and sell at the same time. The good news is, if you think things through, you won't go crazy.
Depending on your personal situation, if you have to buy and sell at the same time, you can choose to sell first or buy first. It will never be a totally simultaneous transaction. You will have to start somewhere, either buying or selling. But you can continue to the next step and buy or sell before the first transaction is complete. This is what I mean when I talk about buying and selling "at the same time".
Buy First, Then Sell
It does sometimes make sense to buy first, then sell. If you prefer to look for your new house without any time pressures, you might want to find your new home before selling your current one. Think about it:
You can look until you find the ideal house. You can afford to be flexible with your occupation date, which might be important to the seller. You won't have to find a place to rent while you wait for your new home to be vacated. And you can make the purchase conditional on the sale of your current home.
On the negative side of buying before selling, you risk having to pay two mortgages for a while. You won't know exactly how much money you have to work with, because you can only guess how much equity you will realise from your current home. And sellers prefer offers that are not contingent on the sale of another property, so you might "lose" your ideal home.
Sell First, Then Buy
Selling before buying makes sense as well, depending on your specific needs and preferences. If you don't want to be pressured when selling your house, you might want to find your buyer before committing to the purchase of another property.
If you sell first, then buy, your equity will be readily available and you will know exactly how much you can afford to spend. There will be no double mortgage payments, no "what if the house doesn't sell", and your offer to purchase your ideal home will be stronger than those contingent on the sale of another property.
If you sell before you buy, there are some negative considerations as well: You will experience some uncertainty about where you will stay until you find your new home. You might have to store most of your furniture for a while, or find interim housing, if the sellers cannot move out of the property in time. You will be under pressure to buy, which might lead you to make rash decisions, which you will regret later.
Plan your purchase and sale
Buying and selling are both stressful activities. The only way to control your stress is by having a good plan. The more things under your control, the fewer things there will be to stress about. So think it through and get as much done as soon as possible.
Get your house ready for sale BEFORE ever starting to look at properties to buy. And get your finances ready BEFORE ever starting to sell your current home.
Get ready to sell before you buy
Get rid of stuff that clutters your house immediately. You don't want to try to de-clutter while the clock is ticking!
Fix the place up. Repairs and maintenance takes time. And buyers like nice houses better than could-be-nice houses.
Find out how much your house might be worth. Get your real estate agent to do a proper comparative market analysis before you go to any show houses. It is just a guess, but it will be a good, informed guess.
Get the paperwork in order. Have identity documents, municipal bills, electrical certificates, etc., ready and at hand. Who is holding the title deed to your house? Get their contact details ready.
Get your marketing plan ready. If you know exactly what has to be done to sell your home, you won't stress as much when the time comes.
Get ahead of the selling game before you even start playing the buying game. But if you can get ahead in the buying game as well, so much the better!
Get ready to buy before you sell
Find out how much money you will be able to borrow BEFORE you make an offer to purchase your new home. Get pre-approved for a home loan. This will tell you how much you can afford to pay for your new house and strengthen your offer to purchase.
Find out how much your house might be worth before you put your house up for sale. Get your real estate agent to do a proper comparative market analysis. How much money will you have in your pocket after the sale? How long will it take to sell? It is just a guess, but it will be a good, informed guess. (Remember that the price of your new home cannot influence the value of your current home!)
Get the paperwork in order. Have identity documents, pay slips, financial statements, and anything else your lender might require, ready and at hand.
Get ahead of the buying game before you even start playing the selling game. But if you can get ahead in the selling game as well, so much the better!
Tools to buy and sell at the same time
Whether you choose to sell while you buy or buy while you sell, there will be a moment when you will be doing both at the same time. This is an unusual period of home ownership, where lots of things can go wrong. That is why you need to get to know the tools that can help you achieve success before you start.
Contingency clauses
You have to protect yourself in the sales contracts. Contingency clauses, which act as safeguards, can be inserted in the agreements of sale.
You can make the sale of your house conditional on finding a new house. This allows you to cancel the sale if you cannot find a place to buy.
You can make the purchase of your new house conditional on the sale of your current property. This allows you to cancel the purchase, if you cannot find a buyer.
It might be best to do both, actually. Then you are protected both ways! And don't forget the mortgage contingency in your offer to purchase. That would allow you to get a home loan to finance your purchase, because you never know what might happen with the sale of your house. (The sale is never done before the transfer of ownership is registered in the deeds office!)
Just be aware that most buyers and sellers prefer contingency-free contracts, unless those contingencies are for their own benefit. Contingencies bring uncertainty for the other party, and both parties are trying to reduce their risk. So, if your offer to purchase or sell contains a lot of contingencies, and the buyer or seller has the opportunity to buy or sell elsewhere without those constraints, most people will go for the free-and-clear sale.
Home loans
You might have to finance your home purchase while still in the process of selling your current house. This means that you will need money to buy, even though your equity is still locked into the old house. This can be done with the help of a "bridging loan".
The bridging loan is a short-term loan that "bridges" the gap between buying your new house and selling your current one. Lenders don't advertise bridging loans, so ask your lender before you need one. But be careful! It is always better if you can buy without a bridging loan, because they often carry high fees and interest rates.
An alternative to a bridging loan involves dipping into your home equity before selling. If you have lots of equity in your property, you could fund your new purchase by borrowing against it before you sell. It would work almost like a bridging loan, with lower interest, but the mortgage fees will still be high. So, it might not make sense to use a home equity loan to bridge the gap between buying and selling.
Occupational interest
Where you will live and how you will pay for it, is always a concern to buyer-sellers, should the occupation dates on your current and new house not coincide. You will simply have to rent a home for a short while, if that happens. But if you can arrange to stay a little longer, if the sale of your current house goes through first, or if you can take occupation of the new house a little earlier than the transfer of ownership, it will usually be the best option.
You would have to pay "occupational interest" or "occupational rent" to the owner, but at least you wouldn't have to move twice in a short period of time. If you had to rent an alternative home for a while, you would need to pay the rent AND possibly pay for storage for some of your furniture.
It would be good if you could negotiate a "rent-back" with your buyer. That would mean you stay in "your" home a little longer, as a tenant who pays rent to the new owners. You would have the proceeds from the sale of the house AND time to plan/complete your next step.
The problem with renting your old house back from the buyer is that he/she will expect the occupational interest to cover all the costs for the property. The sum of the buyer's mortgage payments, insurance, rates, taxes, water and lights might be a lot more than you were used to paying to live there in the past.
Alternatively, you could negotiate with the current owner of your new house to move in before transfer of ownership takes place. Once again, the owner of the property would be calling the shots. But remember that you will have to pay all the costs of living in that property very soon anyway, so early occupation should be very attractive to you!
And if you end up paying occupational interest on your new house while earning occupational interest on your old house, you should still be okay, because your costs of holding the old house should (at least) be covered by the buyer's rent.
A good conveyancer
When buying and selling at the same time, you need to know that your transfer of ownership will be handled in a timely fashion. A good conveyancer is an indispensable factor in your smooth transfer process.
If you can get the other parties to accept, it would be best to negotiate that the same transferring attorney handles both transfers. There would be no time wasted with inter-firm communications and misunderstandings. But if you are unable to negotiate that, at least make sure that the attorney who will effect the transfer of ownership for your property is a good one!
A good marketing plan
If you know what has to happen to get your house sold, you will be less stressed about the sale. A good marketing plan will give you lots of feedback about your advertisements, house presentation and price. This will allow you to fine-tune the plan, if it needs tuning.
Get a good marketing plan in place BEFORE committing to buy. If you don't plan to sell before buying, you might just end up fighting a losing battle. Make sure of your chances to achieve a successful sale first!
