With a shortage of listings in Perth and rising property prices, do you try your luck at making a subject to sale offer or do you buy first?
Surging house prices in Perth over the past 12 months have been welcomed by home owners, especially those who bought since 2020 till now.
Home owners who watched property values erode throughout the Perth property downturn can breathe a sigh of relief, with relatively cheap finance (although rates have been rising), pent-up demand in many suburbs and fierce buyer competition combining to push prices up again.
Perth values are expected to continue to grow by approximately 4% in 2024. But rising prices can also create uncertainty for some home owners.
A few years ago, upgrading to a more expensive property was easier during the prolonged downturn because while sellers may have taken a hit on their own home, the more expensive property they were buying had decreased in price even further, boosting their buying power.
It’s the opposite situation in a rapidly rising market, where the more expensive home increases in value more, meaning vendors need a strategy for simultaneously selling and buying.
Subject to Sale offers just can't compete
Many clients tell me they want to make an offer on their new dream home "subject to the sale of their current home".
Although it is a strategy worth considering, often it ends up in disappointment. You see, making a "subject to sale" offer leaves you in an inferior negotiating position especially when multiple offers are common for many homes and they are invariably subject to finance and cash offers. A 'subject to sale" offer just can't compete when other offers give a seller more certainty and less risk.
Note however, that if you're in a hot suburb and you have a home that is highly desirable, there is a better chance that a seller will consider your offer, however if you're up against a cash offer, you still may not be the favoured offer.
Your "subject to sale" offer becomes the "last cab on the rank" when it comes to attractiveness to a seller. The only way you can convince a seller to accept your offer rather than a subject to finance or cash offer is by offering a "too good to be true" price which means you'll have to pay top-dollar.
I'm finding about half of my clients are now buying their next home before selling their current one. If they sell first, and then purchase later, their purchase price can move away from them pretty quickly because prices are escalating quite quickly especially in high demand inner and western suburbs.
Selling confidence
Buoyant market conditions and a drastic reduction in the length of time properties spend on the market have given buyers the confidence to commit to buying first.
With the supply and demand imbalance that we’re currently facing, the chances of finding an eligible buyer for your property pretty quickly is very high.
This is in stark contrast to the buyer’s market of 2018 and 2019, when upsizers wanted to avoid being in a position where they would be forced to accept low offers.
When the market was more subdued, a lot of people were wanting to sell first so they had more certainty.
However, selling first could be problematic in the current market, and the stress of being forced to find a new home quickly can cloud judgment. Putting yourself in a position where you need to buy within a set period under strong competition is a bit of a risk.
Renting can help you "try before you buy" when moving to a new area, but it’s disruptive, and waiting to find the right property can be counterproductive when prices are rising. It’s a really tight market at the moment and what a lot of family upgraders don’t want to do is sell first and be homeless and have their currency devalued in a moving market.
Odd properties
Most upgraders will manage to sell their old property quickly in a booming market, but not every home will have a queue out the door.
Some properties only appeal to a small number of buyers, while others — such as main road properties, bed sitters or properties in suburbs or buildings that have been “blacklisted” by lenders — will be less likely to be approved for finance by lenders, further narrowing the buyer pool.
If you’ve got an unusual property that’s likely to deter buyers, or an usual property that’s difficult to finance, you don’t want to be stuck holding it.
How unusual is your property?
Finance and settlements
The decision to buy or sell first ultimately comes down to your personal financial situation. Most of my clients are still selling first because they feel more comfortable doing so and are also opting for a "rent-back" option which makes it less disruptive and saves on moving. It also puts them in a much stronger negotiating position in a tight buyers market.
But those with more equity are more likely to buy before selling.
Vendors who buy first need to arrange either a simultaneous settlement of both properties, or bridging finance, which allows buyers to settle on a property before receiving the proceeds of the sale of their old home.
The bank will fund the purchase prior to the sale, and then the sale proceeds will pay out the purchase. You essentially hold two properties for anywhere up to three to six months, but it can be as short as a week or two.
While bridging finance was once an expensive option, lower interest rates have made it much more affordable.
Providing that it’s set up correctly, it’s a valuable tool you can use in a transaction where you buy before selling.
Once you've purchased the new home, if the market is moving upwards, your old home may actually achieve a slightly higher sale price too.
If you're planning to upgrade or downsize but are not sure what is the best selling strategy for your situation, call me now for an informative consultation on what's best for you. With 25 years experience, Ive been helping people make their move hassle free and highly rewarding.
Call me now on 0412 427 877 or email me: claude@edsionproperty.com.au
With thanks to Domain.com.au