If you are selling your home to buy a new one, you may be wondering whether it is best to first sell your property or look for one to buy.
After all, does it make sense to only sell when you have found your new home, or sell your property to allow you to finance the new one?
Most homeowners need to sell their existing property in order to finance their next purchase, but in an ideal world, both these transactions would take place concurrently, enabling the homeowner to move smoothly from one property to the next.
However, David Jacobs, regional sales manager for the Rawson Property Group, says this timing can be tricky since market conditions typically favour either finding a property or finding a buyer – seldom both.
South Africa’s property market is currently subdued, with the average time on market hovering anywhere from several weeks to several months depending on property type and area. This can therefore be concerning for existing property owners looking to move to their next home.
Advice for buying and selling in a seller’s market
In seller’s market, it’s usually relatively quick and easy to find a buyer, but he says it can take a bit longer to make a successful offer on a new home.
“As a result, we usually recommend starting with the purchase in these circumstances. Once you have a signed purchase agreement on the table, you can then start the process of selling your own home.”
Approaching a property transaction in this order will require certain clauses to be included in the purchase agreement.
“It’s standard practice to make the purchase subject to the successful sale of the buyer’s existing property within a specific time-frame. A minimum sale price may also be specified, along with finance approvals, if required.”
It’s also important to detail occupational rent and occupation dates, keeping in mind the possibility that the two property transfers may not coincide exactly.
Buying and selling advice in a buyer’s market
In a buyers’ market like the present, Jacobs says conditions are reversed, making it generally faster and easier for people to buy a new home than to sell their old one. In this case, it may be advisable to list your existing property at the same time as – or even before – starting your own property search.
“It can be stressful to contemplate selling your existing home before you have a new one lined up,” he says, adding that it is possible to make a successful offer to purchase within a specific time-frame a suspensive clause in your sales agreement. However, this can be a deterrent to buyers and end up backfiring in the long run.
Thus, it is generally wiser to have a plan for temporary accommodations, if necessary, in the event that finding your new dream home takes a little longer than expected.
“The benefit of selling first is that you’ll have any equity from your sale available immediately to use for your own purchase. That means you may not need to save up for a deposit, and you’ll be in a strong negotiating position with sellers as well as lenders if you require additional finance,” Jacobs says.
Contingency clauses in home sale agreements
Gerhard Kotzé, managing director of the RealNet estate agency group, says both buyers and sellers need to take extra care when inserting or completing a sale contingency clause in a sale agreement. Buyers, for example, must make sure that the clause specifically states how long they have to sell their properties – say 60 or 90 days - before they must choose to either waive the contingency or abandon the agreement.
“If the clause is not specific on this, the buyer could end up in deep financial trouble, liable to pay for two properties from the day the home loan for the new property is approved. That would be a frightening situation for most buyers and could well drive a forced sale of the existing home for a much lower price than it is really worth."
The sales agreement should also clearly state that if the prospective buyers do fail to meet the deadline, it will be they who choose whether to waive the condition or to void the sale agreement, and not the property seller.
On the other hand, Kotzé says the seller also needs to be sure that there is a specific date by which the buyer must fulfil this type of continency – in the same way that there is a specific date by which they must be approved for a home loan, if they need one – or the agreement could become 'open-ended'. This would means that they would be unable to sell to any other buyer as long as the contingent buyer was not in breach on any other point of their original sale agreement.
"Indeed, although contingent sales are becoming more commonplace again, they are not necessarily simple. Both buyers and sellers are thus well-advised to deal only with qualified and experienced estate agents who will ensure that their sale agreements are correctly drawn up."