The Chicken or the Egg Dilemma

The Chicken or the Egg Dilemma

Sell first and begin your house hunting thereafter, or house hunt first and sell your house thereafter? To work out the answer to this dilemma, you need to ask yourself two questions: what are your financing options and what are the current market conditions?

“Prudent sellers should consider whether their local market currently favours buyers or sellers, and how this will affect their ability to sell and find a home that meets all of their criteria in the given market. A real estate professional will be a valuable source of information in this regard. Able to provide insight into current stock levels, the average amount of time homes in the area are sitting on the market, and how much they are selling for, real estate professionals can help sellers to gauge possible time frames on both the selling and buying processes,” explains says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

Apart from this, Goslett suggests that the deciding factor often comes down to how the seller is planning to finance their new home. Below is his advice according to which financial situation sellers find themselves in:

A) I’m selling my current home as equity for my new home

“In this case, there will be a suspensive condition in your OTP that states that the sale of the home will only go ahead once your property has been sold. In situations where there is more than one offer on the table, sellers may therefore choose to reject your offer in favour of a buyer who already has the necessary financing available. This is why some choose to sell first in order to increase their chances of locking down their dream home when they eventually find it.

However, if you do sell first, you will need to find yourself a temporary living situation until you’re able to move into your dream home. This could lead to a rushed decision in order to limit the amount of time spent in whichever temporary living situation you’ve set up. Your temporary living options include:

  1. Paying occupational rent to remain in your current home which you’ve already sold to avoid moving costs and the hassle of moving twice.
  2. Staying with a friend to avoid paying rent. However, this comes with the pain of having to move more than once, and you will also have to pay for a storage unit in which to keep all of your furniture.
  3. Finding a short-term rental. This includes the risk of not knowing how long you need to rent a space for, as well as moving costs and possible storage unit costs if you’re renting a smaller space that cannot accommodate all of your furniture.”

B) I’m setting up bridging finance
“You could set up a bridging finance option on your current home loan.  This reduces the risk of your offer being rejected owing to a lack of readily available finance required to pay the transfer fees so that the transfer process is not delayed. The bridging finance will be based on the equity available on the property, your credit record and the expected cash inflow. However, you are advised to read the fine print on this financing option very closely. There are all kinds of interest payable and administrative costs involved in this option, and it can end up being a rather costly option.”

C) I’m purchasing cash  

“If you can afford to purchase a second home without first selling your first home, working out the answer to this question doesn’t become much simpler. Should you choose to buy first, you carry the risk of having to pay off two bonds while you wait for the sale of your first home. Should you choose to sell first, you still run the risk of rushing your purchase in order to limit the amount of time spent in your temporary living situation.”

Whichever option sellers choose to go with, Goslett advises that they involve a real estate professional to guide them through the process.

SOURCE: www.remax.co.za.

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