Chan Ai Cheng weighs the pros and cons of selling your home before you buy another one.
Very often home buyers get all excited with the prospect of moving to a new house that they begin house-hunting almost immediately. And ever so often, one comes across a house they really like, falls in love with it and puts in an offer only to be accepted and now they have to rush to sell their current house in order to raise enough funds to make the purchase. Placing such pressures on making your sale is a risky strategy.
You should really consider selling your current house first, that is if you need the funds to make the next purchase, which usually happens in an upgrade situation.
Pros of Selling Your House First
Reason No. 1: “By selling before you buy, you put yourself in a stronger negotiating position when dealing with prospective buyers”.
This is true because whenever you sell anything, the strongest position to be in, is when you least need to make the sale. We want to get away from a ‘Desperate Seller’ situation, a situation where another party can take advantage of should they know about it or sense it. Normally once an offer is accepted, you will have a period of 14 days to execute the Sale & Purchase Agreement and thereafter you will have 3 months from the date of the Sale & Purchase Agreement to complete the sale. In most instances, you will have a 30-day extension with interest of 8% per annum.
If you’ve not fallen in love with a new house and did not make an offer, then you don’t need to sell quickly to raise the funds needed to make the purchase. You can’t then be pressured into selling before the right offer comes along. You still remain in control of the pace of your sale. You are free to decide when and who you’ll sell to.
It won’t matter as much if your house does not sell as quickly as you’d thought. You are free to hold out for the best price. It certainly helps if your house is located in a much sought after location and your price is right. I know of a house in Bandar Utama that got sold just one day on the market! Not all houses move at this speed.
Reason No. 2: “By selling before you buy, you put yourself in a strong position when making offers to vendors. You’ll be classified as a ready buyer”.
This is true because you will be a chain-free buyer and a ready buyer who is able to proceed immediately. Nothing is more comforting to a Vendor/Seller of Property to know that the buyer is in strong financial standing and the offer comes with no additional terms and extra conditions.
A seller will gladly take his property off the market if he receives a decent offer from you and thus you maximize your chances of owning the house that you like.
A Seller who receives a conditional offer vs a non-conditional offer, they will choose the former over the latter anytime. And in some situations, you’ll be able to offer less money on the property than a buyer who still has to sell his existing house as a condition or subjected to lower margins of financing.
Risks of Selling Before Buying
Having said that, selling before you buy is not completely without its risk.
Risk No. 1: If prices are rising fast, selling and then taking a long time (more than 3 – 4 months) to find a new house can spell disappointment.
This is because prices may have risen to such an extent that you’re priced out of the market. It is quite amazing the increase of property prices within a short period of time. An agent friend of mine updated me on property price movements in Bandar Utama which have risen by at least RM50,000 – RM100,000 in just a 6 – 9 month period.
You need to get a grip on what prices are doing in your area. Ask estate agents for their opinion and do research from websites.
Risk No. 2: If you sell and can’t time your purchase to perfectly overlap your sale, you may have to rent for a period.
I have come across situations where the seller is given a 7 – 14 days notice to deliver Vacant Possession as his buyer completed the sale (as in paid the balance 90%) well before the 3-month period as per the Sale & Purchase Agreement. This can be a stressful time having to pack up and vacate the house before you have another house to move into.
Renting – Less Stress?
Most seasoned sellers don’t mind renting. They’ve been part of a chain before and know that renting (although mildly irritating) is in reality a far less stressful proposition. Having said that, we all know the challenges of moving from one place to another. There is also moving cost and damages to consider.
There are ways to counter these risks.If you’re not prepared to rent for any length of time, you’ll have to make it clear to buyers that you’ll only accept their offer on condition that you find a suitable property to buy, or within a specified period of time.
Ask yourself how much time you think you’ll need. Then try and agree on that period with your buyer. Your lawyers will be able to advise you on the clauses to amend and to add in to cater to this need provided your buyer is fine with it.
In most Sale and Purchase situations, the process of completion will take place 3 months from the date of the signing of the Sale & Purchase Agreement. There are some home sellers who offer to pay the new buyer rental up to a certain date before delivering Vacant Possession, some for as long as a year. If the buyer does not need the house urgently, he is inclined to go along with you.