Should you Sell First or Buy First?

Should you Sell First or Buy First?

If you're a homeowner thinking about upscaling, downsizing or relocating to a new area, you’re likely facing one of the most common dilemmas on the property journey: Should you sell your current home before buying a new one, or buy first and then sell?

Both options come with their own sets of benefits, risks and timing considerations so it’s important to understand the pros and cons of each.

Lew Geffen Sotheby’s International Realty shares the following guide, explaining the advantages and disadvantages, delving into financial strategies like bridging finance and offering tips on how to manage the logistics of moving and navigate today’s dynamic housing market.

Option 1: Sell First, Then Buy

Pros:

• Know Your Budget: Selling your home first gives you a clear idea of how much money you will have to work with, especially if you're relying on the proceeds for the deposit or purchase.
• Stronger Position as a Buyer: With cash in hand or an approved bond, you're in a better position to negotiate when buying your next home, especially in competitive markets.
• Avoid Carrying Two Bonds: Selling first reduces the risk of being financially stretched by two home loans, which banks may be hesitant to approve unless you have strong affordability.

Cons:

• You Might Need Temporary Housing: If you haven’t secured a new home before your current one sells, you may need to rent short-term accommodation, which can be disruptive and expensive.
• Market Timing Pressure: You may feel rushed to find a new home quickly after selling, which could lead to compromises in location, size, or quality.

Option 2: Buy First, Then Sell

Pros:

• Smooth Transition: You can move straight from your old home into your new one, avoiding the stress of temporary housing and double moves.
• More Time to Shop Around: You're not under pressure to buy quickly, so you can take your time to find the right home in the right area.

Cons:

• Financial Risk: If your current home takes longer than expected to sell, you could be paying off two home loans simultaneously, which can strain your budget.
• May Limit Bond Approval: Your debt-to-income ratio could disqualify you from getting a second bond until you sell the first property, depending on your income and credit profile.
• Overestimation of Sale Value: If you buy a new home based on an estimated sale price of your current home, but it ends up selling for less, you could face a shortfall.

How Bridging Finance Can Help

If you choose to buy first and need to unlock the equity in your current home before it’s sold, bridging finance may be a viable option. This is a short-term loan that allows you to access funds - such as the proceeds of your sale or your deposit - before the transfer is registered.

🔹 When is bridging finance useful?

• You're waiting for proceeds from the sale of your current home.
• You need to put down a deposit on a new home quickly.
• You’re waiting for a bond to be registered or transferred.

🔹 What to know:

• Bridging finance is typically offered for a short period (1–3 months).
• It comes with higher interest rates and fees.
• You'll need to show proof of the expected funds (e.g. an offer to purchase).

Several financial institutions and bond originators in South Africa offer bridging finance, including ooba and SA Home Loans.

Key Questions to Ask Yourself

Before deciding whether to sell first or buy first, ask the following:

1. Do I need the proceeds from my current home to finance the next one?
2. How quickly are homes selling in my area?
3. Is it a buyer’s or seller’s market right now?
4. Can I afford two bonds temporarily if needed?
5. Do I have a contingency plan for temporary accommodation or storage?

Managing the Moving Logistics

Whether you sell or buy first, managing the transition smoothly is critical. Here are some tips:

If You Sell First:

• Include an “occupational rent” clause in the sales agreement, allowing you to stay in your home (and pay rent to the buyer) until your new home is ready.
• Line up storage options for your belongings in case of a gap between moving out and moving in.
• Start house-hunting as soon as your home is listed or has received a serious offer.

If You Buy First:

• Start marketing your current home as soon as your offer on the new home is accepted.
• Price your home realistically to attract quick, competitive offers.
• Work with a reputable estate agent who understands your timing goals.

What the Market Conditions Mean for Your Strategy

The property market cycle plays a big role in deciding your approach:

• In a seller’s market (high demand, low supply), it may be easier to sell your home quickly and at a good price - so selling first is less risky.
• In a buyer’s market (more supply, lower demand), homes take longer to sell, and prices may be negotiable - so you might consider buying first if the right opportunity comes up.

Always consult with an experienced local estate agent for up-to-date insights in your area.

There’s No One-Size-Fits-All Answer

Ultimately, both selling first and buying first come with advantages and trade-offs and the right decision depends on your financial situation, the property market, and your personal preferences for risk and flexibility.

Here’s a simple rule of thumb:

• If you need the money from your current home to buy, sell first.
• If you have the financial capacity to carry both homes temporarily, buy first - but have a backup plan.

With the right planning and professional support, you can make a smart move that aligns with your goals, budget, and timeline.

And, if you’re thinking of buying in the near future, consider getting a head start by speaking to a bond originator or estate agent early-on to get a better sense of your options and financing capacity. Planning ahead can make all the difference.