Buying bigger and better, weighing the risks of “buy before you sell”

With interest rates at a multi-year low, the potential for further cuts, and bank finance readily available to qualifying buyers, more people are buying higher priced homes, according to the Seeff Property Group. Data from ooba Home Loans confirms the value of granted bonds has increased by as much as 17%, while the number of granted bonds is up by 9%.

A burning issue these buyers often face is whether they can put in an offer on a new home if they have not yet put their house on the market, let alone sold it. What happens if your offer is accepted, but you cannot sell your property or get the price you need to finance your new home?

The primary risk of buying first is the “double bond” scenario. Elaine Vandayar, licensee for Seeff Richards Bay, says that personal circumstances sometimes leave buyers with little choice but to secure a new home first. In these cases, you may end up responsible for two mortgage repayments simultaneously. There is also the challenge of sourcing a deposit if your equity is still tied up in your current house.

It is important to know that you do not have to sell before you buy and many transactions are linked this way. That said, Gerhard van der Linde, MD for Seeff Pretoria East, says buyers must just bear in mind that these offers usually include a “suspensive condition,” which allows the seller to keep marketing their home. If another buyer makes an unconditional offer, the original buyer must either drop their contingencies to secure the home or risk losing it entirely.

Tiaan Pretorius, manager for Seeff Centurion, also says “clean” offers without these linkages tend to register much faster. While many transactions conclude successfully with sale contingencies, Pretorius suggests buyers often need to “sweeten the deal” with a higher price offer to compete with unconditional buyers.

The Advantages of Selling First

• Selling before making an offer allows you to cash out your equity for a deposit.

• An offer which is not “subject to a home sale” is also usually much stronger.

• Selling first also removes the financial risk of ending up with a dual mortgage situation.

The Downside of Selling First

• If you sell quickly, you will need temporary accommodation while still house hunting.

• This “double move” will involve extra costs, stress, and temporary instability.

• You could end up “panic buying” if you run out of time.

Balancing the Risk

Ultimately, the right choice depends on market conditions and financial liquidity, says Mrs Vandayar. The best approach is to consult a local estate agent to assess how fast your property might sell and at what price. That way you can start your house hunting with relative confidence, she says.

Issued by Gina Meintjes