Swapping homes, particularly when upgrading, will test your skills as a negotiator and an investor.
How well you do can make a major difference to your wealth.
Urban myth has it that you must sell first, then buy.
The mainstay behind this is the rationale that you can do a better deal with cash in your pocket and knowing what your budget is to buy.
You’ll also void the age old trap of bridge financing your purchase in the hope that the market for your sale will improve, only to potentially find at the end of that time that the market has fallen further, thus compounding the mistake.
All of this is valid in a falling or flat market and is generally correct.
In these markets it’s best to sell first.
But I believe that, on balance, the reverse is the case in a moving market.
The risk in a rising market is that when you sell first and then buy, you can sell too quickly and for less than what you should have done.
Just be careful you don’t get caught up in the hype and let your asset go too quickly.
Often the moving market will pick up something extra for you on your sale.
But what if, in talking to agents about your sale to determine your budget on your purchase, you stumble onto a buyer who’s keen to put in a good offer now on your property?
They don’t want to wait until you sign a contract to buy.
They could be you best buyer.
Is there a way you can sell now and protect yourself by not paying too much on your purchase?
Yes there is!
Here’s the clause you should add to your Contract of Sale:
“This contract is subject to the seller, as a buyer, entering into a binding and enforceable Contract of Sale on terms signed by them for the purchase of a property at (insert new neighbourhood) within 30 days from the date of this contract, failing which the seller may terminate this Contract of Sale, and in the event the sale will be at an end and the deposit refunded to the buyer.”
If your buyer gets anxious about the inclusion of such a clause because they don’t have certainty for another 30 days, then reduce the period to 14 days.
This will still give you two full weeks to secure another property.
If you haven’t found your new home by then, your buyer has already committed two weeks of their life to waiting for you and will probably agree to another short extension.
Property Under Offer
If you’re looking for a property in New South Wales or Victoria and you see on the agent’s sign a sticker with the words ‘Under Offer’, you’re likely to turn away and look for another property on the assumption this one has been sold.
But maybe it’s worth probing further.
To be confident the property has been taken off the market you need to know not whether it’s “under offer” but whether it’s “under contract”.
In Victoria and NSW the process of buying a property starts with the parties signing a Sales Note and following that, some three or more weeks later, they enter into a binding and enforceable Contract of Sale (by way of a process called Exchange of Contracts).
Therefore the note on the sign usually indicates that the property is subject to a Sales Note and not a Contract of Sale, which means it’s still open to you to submit an offer.
To secure the property, though, you need to sign a contract now and submit it to the seller.
In these two states the practice is to do the searches of the property after the Sales Notice is signed and before the Contract of Sale is entered into.
So if you wish to submit a contract on a property in these circumstances you’ll need to sign up “subject to a due diligence” so that you can do the usual searches after the contract is signed and have that protection in the Contract of Sale.
“If your buyer gets anxious about the inclusion of such a clause because they don’t have certainty for another 30 days, then reduce the period to 14 days.”
A man at one of my seminars recently asked for my thoughts on a dilemma he was in.
He and a friend had entered into a joint venture to buy a property.
They’d settled the purchase and were now dealing with their lender, signing documentation for the loan for the construction costs.
The lender required personal guarantees from them both, but only the man who was talking to me had assets in his own name.
He hadn’t gone down the path of asset protecting himself by acquiring all assets in the name of a company acting as a trustee for a trust.
His join venture partner had, however, and was therefore happy to provide his personal guarantee, but it was worthless.
All of his assets were in a company acting as trustee for a family trust.
I told him I’d be surprised if the lender wasn’t aware of this issue and hadn’t also requested a guarantee from this man’s company/trust.
If they didn’t, my suggestion was that it was unfair to him that he would be effectively the only real and valuation guarantor to the loan and that he should ask his friend to offer a guarantee from his company trust to level the playing field.
They would then both be providing guarantees to the loan that were worth something.