Do you need the money from the sale of your existing home to go towards buying your next property?
If you’re like a majority number of Australians who are currently in the housing market, the answer to this question is probably “yes”.
In this situation, there are a number of options open to you, including selling your home and renting short-term while you look at the market. However, renting isn’t your only (and rarely preferred) option. Instead, you may find that buying a house subject to the sale of your house is a solution. But is it worth it?
To help you decide, this article explains how to buy subject to sale, the reasons you may choose to take this option, some pros and cons of the process and how you can boost your chances of success.
HOW IT WORKS
To buy a house subject to the sale of your house, you put special conditions into the contract on your new property. These conditions make the purchase of your new home (or block of land) subject to the completion of the sale of your existing home (or land).
Adding these conditions means that you don’t have to buy or pay for your new house until after your home is sold and you’ve received the money from that sale. You then use that money to buy the new property (with or without an accompanying mortgage).
Obviously there are a few legal things you need things to take care of when doing this (such as inserting the address of your current home in the contract), but ultimately, it really is as simple as I’ve described.
WHY BUY SUBJECT TO SALE?
Many people choose to buy subject to sale so they don’t have to rent in between selling their current home and buying their new one. Taking this approach means you can move straight into your new home rather than worrying about the costs and hassle of moving twice over – a huge saving for both your wallet and your peace of mind! It also means you won’t risk having to pay rent and a new mortgage at the same time if you find a house before your lease expires.
If you’re downsizing or buying a similar property to your current one, buying subject to sale may allow you to complete the transaction without having to borrow a cent from the bank at all! (Provided you have enough equity in your existing house, of course.)
THE MAIN DISADVANTAGE… AND HOW TO OVERCOME IT
The greatest disadvantage to buying a house or land subject to the sale of your existing house or land is that your offer may be less appealing to the seller than other offers.
For example, if you offer $600,000 subject to the sale of your home and someone else offers $600,000 without any, or less conditions, chances are you’ll lose out. Even if the other buyer offers $590,000 without conditions, the seller may still choose their offer over yours because they come with the advantage of certainty, or less risk. So the main disadvantage here is you’ll almost certainly have to pay significant “overs” to secure the property.
There are three main ways to try and overcome this disadvantage.
The first is to make an appealing offer. If your offer is generous, the seller may be more willing to wait around for your house to sell, because they’ll benefit from getting a higher price for their property.
Alternatively, if that isn’t an option for you, you could try and find a property “off market”, that being one that’s for sale but is yet to be advertised. An off market seller may have fewer offers on the table (or none at all). And because their property isn’t yet being advertised, they may not feel the same pressure to sell right away, giving you the breathing time you need to organise the sale of your existing home.
The third option is to specify certain deadlines in the sale contract. This involves specifying a certain date by which you must get a contract on your home, another date by which the contract must go unconditional, and a certain date for when your contract must settle. Failing any of these, either party (you or the seller) can terminate the contract immediately. Not only will these deadlines reassure the seller, they’ll also protect both of you – so it’s always worth taking this approach regardless for the sake of everyone’s peace of mind.
THE FINAL VERDICT
When deciding to whether to buy subject to sale, it’s really a case of security vs expenditure. If you want the complete security and peace of mind of knowing you don’t have to move until your home is sold, then this is probably the option for you. Just know that you’re almost certainly going to have to pay extra for that security, quite possibly 10’s of thousands of dollars.
Alternatively, If you want to buy a property that’s not subject to the sale of your home but you still need to sell your home to finance some or all of the purchase, the safest (and my most recommended) method is to sell your home with an extended settlement of 2+ months and then go out to purchase with confidence with your now clear budget.