The decision to buy a new home can cause many emotions, particularly in situations where there are very little options or flexibility. There are so many factors which come into play that can affect the decision and cause a whirlwind of confusion, stemming from the uncertainty of what is going to happen next.
Deciding on whether you should sell your current home before purchasing a new home or buying first and then selling can be challenging for many families. It can be even more difficult when that decision is forced upon you due to unpredictable circumstances.
Moving to a new home is never easy...
A typical ‘home upgrade story’ may look like this: Meet Greg Thompson. He lives with his family in a middle class suburb a few kilometres out of Sydney. They currently own their three bedroom home and have a fourth child on the way.
Greg and his family have been on the hunt for a new property further out from the city with an extra bedroom priced within his budget.
After a few weeks of research, Greg has landed on his family’s next home. To make the decision to move as smooth as possible, Greg decides it’s best to purchase the house first before selling the old one.
The Thompsons can afford effectively paying two mortgages at the same time—for a while... A bridging loan seems like the perfect solution to Greg, letting him make an offer on the new home quickly.
… and financial pressure can make it even harder
Unfortunately, getting a home sold is never always that simple or straightforward. Life can get messy and the options can be quite blurred, causing uncertainty of which is the right choice.
Take for example Rita Little:
Rita is currently going through a divorce and was forced to downsize her property
Timing is crucial here as she can no longer afford the mortgage on her current property and is hoping to have it sold before she purchases her new home.
Her situation is far more stressful than Greg’s comfortable decision to upsize.
Rita is under the pressures of significant life changes, and making the right decisions can be a challenge particularly when emotions come into play.
With the divorce and separation proceedings weighing on her mind as well as trying to balance a full time job and her children, Rita is a placed in a scenario where she is vulnerable in the process of selling her home.
This can often lead to taking drastic and desperate measures in order to make sure the home is sold in the due time. Rita simply wants to move on with her life and start anew, and having to go through the sale of the family home may mean she prefers take the easiest option, considering offers that may not be in her best interest.
Distressed sales are not exclusive for life changing moments, there are cases where homeowners are need to have access to their new property as soon as possible and their only option is to sell. Richard Powell found himself in that situation in the following example.
Richard lives close to the CBD in a luxury townhouse he had purchase just five years ago.
Richard’s wife passed away unexpectedly just six months ago and the expenses of her funeral and repaying debts on her estate have caused a financial burden that has not been easy on him.
Combined with the loss of her income, Richard is unable to make the repayments on his townhouse, meaning he has to dip into his savings.
Richard still has equity in the house and is able to afford to pay a smaller mortgage, making him look at downsizing options. However, he is fearful that due a recent downturn in the housing market, it will be difficult to sell his townhouse. He decides that the best option for him would be an expensive bridging loan to cover the cost of the new home while his townhouse remains on the market until it is sold, feeling it would be the best option to help speed up the process and get him settled sooner.
A situation can go from bad to worse when the decision maker is uninformed and finding themselves in a desperate situation. Let’s take a closer look at the examples to see the pros and cons of each.
I need to sell. What options do I have if I want to buy a new property at the same time?
If you find yourself similar to Rita and Richard, things get tough. However you do have a few options at your disposal to ensure that the outcome works in your favour:
Rita may be able to structure her purchase contract to state that a successful sale of the new property is based on her being able to sell the old property.
This option really depends on whether the market is a buyer or sellers market. If there is a significant amount of competition for Rita when buying a new home, the seller might not feel comfortable with the idea of having to wait for the previous property to sell.
If on the other hand, the market is more favourable to buyers, the seller may be more willing to make accommodations provided that the previous home is able to attract enough interest.
In a distressed sale, whether due to personal or financial reasons, this may not be the best option. If you need to make a move fast and don’t have the means to acquire a property as soon as possible, it can be difficult make this a clause of the contract.
The sale may still take a long time to conclude and without the property sold, you will not be able to lock in a new place, leaving things very uncertain. Furthermore, in a financially distressing situation, you have less power to negotiate.
Another popular option which allows Rita to buy some time is to take out a bridging loan to cover the cost of the new home under security of the old one. This is a suitable for parties who do not have the financing to cover the cost of the new home and instead prefer to take on a short term loan in the meantime.
The loan is then paid back on the successful sale of the original home. Once again, this depends on the performance of the market, if it can take some time to sell the old home, this option becomes less desirable as you will be having to cover the cost of two mortgages plus the bridging loan.
Bridging loans are not for everyone. They can be expensive and will take a toll on your income when it comes to making the repayments. While they can give you the flexibility of moving into a new home sooner, you will essentially be paying for two mortgages place a bridging loan. If things move fast and you are able to sell your old home sooner, this is great. However, if things don’t go as planned and your old house takes a little longer to sell, it can become very costly.
If we were to place Richard in this situation, he could feel that the bridging loan would be appropriate since it will allow him to focus on settling into a new home, without having to stress about selling the old one.
Months pass, Richard’s townhouse remains on the market due to it being a high-end property and priced significantly higher than the median townhouse in his suburb. Richard is paying mortgages on both properties and still has an outstanding bridging loan to cover the cost of the deposit.
The bridging loan will go unpaid until the settlement of his townhouse causing further stress and anxiety, further disrupting Richard’s finances.
Bridging loans are not a suitable option for either Rita or Richard. They both are under pressure to move into a new home sooner while still also maintaining the mortgage on their old one. This can be quite costly and place further financial burden on an already complicated situation, making a tight squeeze even tighter.
Read more: Bridging finance pros and cons
Rather than taking on additional debt, Rita may prefer to sell her old home first and this gives her the option to enter an agreement with the new buyer and the lender to rent the home for a period of time, usually 60 to 90 days in exchange for a lower selling price or an agreed rental price. This gives Rita additional time to move out and make the transition period a little smoother.
A rent back agreement works well, provided you have a buyer lined up. In the situation with Richard and his townhouse, he may have the property on the market for weeks and struggle to find interested parties.
There is also no guarantee that the rent back agreement would be appropriate for Richard’s finances as the rent on a luxury townhouse can often be higher than the repayments on a mortgage depending on the location. This would only put further strain on Richard as he attempts to find a property to move into.
Selling Your Home with Sellable
Rita does have another option at her disposal which offers the convenience of a fast sale, taking much of the uncertainty and guesswork out of the decision. With Sellable, Rita has the option to sell her home upfront and be paid as quickly as 7 days, far sooner than she would have if she was to wait for her home to be sold through traditional methods.
With most homes being on the market from around 90 to 118 days, the distressed sale can be one of the most high pressure and emotional moments of a person's life. Not only are they having to give up the place they had once called home, they have to juggle many other life decisions which, when added up, can certainly take their toll on person.
With Sellable, the guesswork and uncertainty are removed. Rita would be made a guaranteed offer before she was to move out meaning she has access to the cash much sooner and her next steps are much more obvious when it comes to securing her next home.
This means that the decision of when to move out is entirely up to Rita, she is no longer at the mercy of the market meaning she has full control of when she leaves her old property and moves in to start the next chapter of her life. There is minimum disruption to her working and family life as she is able to coordinate the sale around her lifestyle, removing much of the stress from a very emotional time.
Remember Greg Thompson? It turned out his sale wasn’t as easy as expected and they property sat on the market longer than expected, the two mortgages putting a strain on his family’s finances. Had Greg known about Sellable he would have been able to avoid the stress and risk of having to finance both his properties for over 100 days (NSW average).
The Sellable Model
Sellable take a different approach. With a traditional real estate agent, inspections may take place while Greg, Rita or Richard is still living in the property, making an already stressful situation even more cumbersome. If, on the other hand, they decided to first move out this would mean additional financial hardship—as each would have to finance either an additional mortgage or rent at the same time.
Finally, the inevitable back and forth negotiations can take weeks when negotiating a sale by private treaty—something that is more common in a cooler market or lower value properties.
Greg, Rita, and Richard can make the process easier and save money by using Sellable instead. With us, they receive an upfront payment based on an independent valuation and can leave all the hard work to us. No more agents, timewasters or lengthy negotiation processes.
For Rita, this is the ideal outcome. She is able to move on with her life without anything holding her back. The many years Rita and her family lived in the property have left their marks it. Thankfully, Sellable will take care of any required repairs (and even improvements) without any outlay on Rita’s side—and she will still receive the majority of any extra we achieve above the guaranteed price.
On top of that, by using Sellable, Rita doesn’t care how long her home may sit on the market—her mortgage is discharged the moment she moves out.
Richard is particularly happy about the guaranteed price, giving him certainty about how much he can spend on his new property. Sellable is also able to advance up to 10% of the guaranteed price for any deposit he needs to make, making it possible for him to compete on equal footing with other potential buyers despite having lost his savings.
For both Rita and Richard, Sellable takes the risk—once they signed on, they know exactly how much they are getting for their property and when. No more uncertainty and worry!
How Does it All Work in Detail?
Let’s take a look at the Sellable model in action. Rita is anxious about the sale of her home during the divorce and separation proceedings and at this stage she just wants to get on with her life.
With two kids and a full time job to focus on, the last thing she time for is the lengthy process of selling her home. She discovers Sellable and after provides her address and contact details online. After an initial call with the Sellable team, a valuer visits the home for an inspection.
48 hours after the inspection, Rita receives Sellable’s offer for her home. Rita decides that she would like to move sooner rather than later and decides to take the offer. Upon signing, Rita provides a move out date two weeks following the contract. If she had decided not to go ahead with Sellable, Rita would have been able to reject the offer without any costs.
On the move-out date, her home is inspected again to ensure no major changes to the condition have occured and her mortgage is discharged. Any balance is deposited in her bank (or a simultaneous settlement can be arranged with the seller of her new home).
While Rita is getting settled in her new home, Sellable is preparing her old one for sale. This means arranging repairs and making improvements to the property such as painting, landscaping or renovating a dated bathroom or kitchen—all to show the property in the best light possible.
Before listing it with the help of a local agent, the property is staged and professional pictures are taken. Sellable keeps Rita updated as the sale progresses and following a successful sale will share any potential upside with her.
It is clear that there are far more options available than ever before and that in uncertain times, options such as Sellable help reduce risk and provide certainty for the seller.