The Chicken and the Egg

Which came first.
The eternal question.

I can confirm it was the egg.

So having solved the chicken and egg dilemma I would like to shed some light on the Real Estate version of this question.

Should I SELL first or BUY first.
This is a question judging by the amount of times I get asked it which creates indecision for a lot of property owners.

I would preface that my comments here are to do with the Queensland market, other states may vary.

The principle considerations seem to be;

  • If I Sell first where will I go if I haven’t found a property.
  • If I have to move twice what will be the expense of temporary accommodation, extra removalist costs or potential storage.

What you may not be considering is;

  • If you buy a property Subject to Sale what extra will it cost you.
  • Once you are committed to a property purchase will you negotiate more on your current home to get there.

Lets look at some of these questions

If I Sell first where will I go if I haven’t found a property.
The first thing to ask yourself here is what is possible, NOT what would I prefer.

I have many conversations with people on this point where I am told that the costs or moving twice, temporary accommodation and storage would be too exorbitant to bare, on further conversation though I find out that Mum & Dad, 2 Brothers with sheds, 1 Sister and 10 or so childhood friends all live locally in the area. When asked why don’t you see if you can stay with one of them the answer is often I am not sure I want to impose or I don’t think I could live with Mum and Dad.

So my next question is. You are looking to buy a $700,000 property, what if I told you that you might save $35,000 or even $70,000 on that purchase if you stayed with friends and family for a few months, would you reconsider? The answer is usually YES, then a question of how could that be possible.

If you buy a property subject to sale what extra will it cost you.
Buying a property subject to sale does put you at a negotiating disadvantage with a potential Seller.

Let’s look at a scenario. Put yourself in the shoes of a seller for a few minutes;

  • You own a property which has been on the market for 2 months at $1,200,000.
  • You are selling your lovely home because you are in some financial distress servicing your mortgage of $800,000 due to you losing your job and you are looking to downsize for the time being until you get yourself on your feet again.
  • Your concerned that if you don’t receive a contract in the next few months that the bank may bankrupt you and repossess you home. To date you have received no offers to purchase.

Now this might seem like an extreme example, but it does happen and it illustrates the point well.

Along comes Tim and Sandy to inspect your home, Jim your agent had a wonderful inspection with them and Tim and Sandy have decided to make an offer. Jim meets with you that evening to discuss the offer. The first thing you notice is that Tim and Sandy have made a full list offer for your home of $1,200,000, great! Jim explains that Tim and Sandy are moving from central Queensland from a small town called Claireview and that the offer they have made is subject to the sale a property there. After consulting Google to work out where Claireview is you would then most likely quiz Jim about if they are likely to sell any time soon and will they get their price. Jim explains that Tim and Sandy are talking to the only local agent and are confident that they can achieve around $850,000 for their large acreage property and are hoping to come onto the market sometime in the next few weeks.

So about now the following things will most likely be going through your head.

Yippee a full list OFFER.

I wonder if they will be able to sell that property and settle before my bank takes the house?

I wonder if they will get enough for it even then to be able to complete the purchase?

Do many homes sell in Claireview?

If I take this contract will it put off other potential buyers?

Did the egg really come first?

Jim says he has had a look at the data for Claireview and is not sure if the buyer will achieve their goals. You ask to think about it over a few days before making a decision as you would really like to get the $1,200,000.

The next day Jim calls to let you know that he is doing an inspection for a couple who have just flown in from Melbourne and are keen to buy a property today, best of all they have indicated they have cash to purchase and won’t need finance. They watched the marketing video of the property and think it could be exactly what they are looking for. Sure enough Jim calls to say that Brett and Jackie loved the property and have made an offer, you arrange to meet that evening to discuss.

When Jim arrives you sit down to take a look. The first thing you notice is that the initial offer price is $1,050,000. You sternly remind Jim that the asking price was $1,200,000 and that Tim and Sandy are already willing to pay that.

Jim acknowledges your comment and asks you to take a look at the conditions.

On inspection they are;

  • 7 days building and pest.
  • No finance clause
  • Settlement in 14 days.

You comment to Jim, wow those conditions are good, but decide to counter offer at 1,150,000 not negotiable as you feel the price is too low. After much toing and froing the highest offer that Brad and Jackie will make for your home is $1,079,000 but they have agreed to make the offer not subject to building and pest so it is now a cash contract. To top it off they are going back to Melbourne tomorrow afternoon and are off to look at other properties tomorrow as they need to purchase one before they leave.

So the question is what would you do.

Take the offer of $1,200,000 subject to sale of a property in Clairview with the doubts which go with that or take the $1,079,000 offer and know that your financial distress will be ended.

Buyer or Sellers’ Market Influence
The type of market which you are Buying and Selling in will greatly influence your ability to purchase subject to the sale of your current property.

When it is a sellers’ market it is often the case that a Seller will not even consider a subject to sale offer and will most likely be advised by their agent not to do so. This is because the Seller will be spoilt for choice and doesn’t need to take the associated risks of a subject to sale contract or wait for the buyer to sell their property.

When it is a Buyers’ market however sellers will most likely consider all options to get their home sold which includes subject to sale offers. It is not unusual in these markets to see chains of subject to sale properties which can be somewhat of a logistical nightmare to manage settlements and changes to dates which suit all parties in the chain.

So Which is Best
In conclusion whether you sell first or buy first really does depend on your individual circumstances.

Where ever possible though if you can sell first or at least get a contract first I would advise that you do so as long as it isn’t going to cost you too much in surrounding costs. Doing it in this order could gain you easily 5% bargaining power.

Here are some more take homes from this discussion;

  • If you buy subject to sale you will most likely pay more.
  • If you Sell first you will most likely pay Less
  • If you are able to achieve a cash position i.e. no finance you will put yourself in the strongest negotiating position.
  • A subject to sale offer is more likely to be accepted in Buyers’ market.

I hope this has helped shed some light on the considerations you could be making regarding the sale of your property. If you would like to discuss your own personal situation one of our agents is always just a phone call away.

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