Why buy first?

Last week I went into the reasons that it is advantageous to sell your home before putting in an offer on a new home. This week I'd like to go into some detail on the intricacies of trying to purchase a new home before selling your existing abode.

To recap last week's advice, some of the pros for selling first are:

  • Financially it can be a deep and dark hole if you do buy before you sell your own home.
  • Budgeting
  • Put in a clean offer.
  • Time frame certainty.
  • Make your bank manager a happy man/woman.

However, in some cases you might want to put in an offer before selling your own home. You can still take advantage of some of the benefits of putting a clean offer to strengthen your negotiating position if you are comfortable with the risk of owning two homes simultaneously. A clean offer is an offer that doesn't have any burdensome conditional clauses except for a normal clause concerning the raising of finance. This removes the burden of accepting a conditional offer from the seller and moves both the risk and worry to your side of the equation.

In a seller's market, i.e. one where sellers are realizing their prices quickly and easily and there is an oversupply or ready supply of qualified buyers, you might want to adopt this strategy to secure your deal.

In buyer's market however, i.e. one that has a scarcity of buyers and properties are taking longer to sell, it would be inadvisable to adopt the above buy first strategy. If you did, you might well find yourself in a position where you have to sell your own house at a reduced price because of your commitment to your new property. This gives the prospective buyer of your house undue advantage in the negotiation.

What does happen in some cases is a daisy chain of conditional offers. Seller1 sells to buyer1 with a conditional clause to sell his own house in a specified timeframe. Buyer1 is now also seller2 and does the same with the same scenario being repeated. Soon a daisy chain of deals has been set up that is only as strong as the weakest offer. One deal needs to fall through for the other dependant deals to all back up like cars in a traffic jam and nowhere to go. I've heard of a deal with 5 such conjoined conditional sales and miraculously they all worked. Not for the faint-hearted as just one glitch and months on time and effort have been wasted and need to be recovered to close another deal.

Some people advocate the conditional on my sale deal as a means of backing out of a deal at a later stage. The buyer just doesn't have to accept any offers on his own place to be released from any obligation to follow through on his own purchase. Another good reason not to accept any conditional offers as a buyer.

Conclusion
I still think it is a better strategy in both a buyer's and seller's market to sell your own home first.

Article by: Dave Welmans - (www.thepropertygame.co.za)