Deciding whether you should buy or sell your house first should be based off your finances, moving timeline and the market conditions of your current and future homes. Generally, selling first benefits home sellers in buyers’ market while buying first benefits home sellers in the sellers’ market.
When market prices are softening, it’s often a great time to shop for a new home. But this also puts upgraders in a pickle. So do you sell your current home first before prices dip further? Or do you hold on so you can buy a cheaper new home – but risk having your current home value heading southward? What about your opportunity cost?
Whether you’re upgrading, downsizing, or simply relocating, let’s explore the pros and cons of each option to help you make the right decision.
The Pros and Cons of Selling Your Property First
The Pros:
1. It’s Easier to Manage Your Finances
The current property situation is a key factor in our decision to sell the flat first before buying another. If you concerned about your ability to manage payment for two or more houses, it is better to sell the current property before purchasing your next. This allows ample time and resources to consider your options.
Paying the mortgages on two or more homes can cause financial strain. And having an existing mortgage can make it hard to qualify for your new mortgage, as your monthly payment factors into your debt-to-income ratio.
2. It’s A Safer Bet
You’ve sold your home? Remember that for HDB: Once you have issued an OTP to a buyer, you will not be able to accept any other offer for some 21 days. (This is the same amount of time a buyer has to exercise the OTP. Buyers can change their minds during a 21 day-period for HDB flats) and 14 days for private properties (typically 14 days but can be negotiated to be a longer duration if both parties agree.). Even if you have enough funds to temporarily juggle between both, not knowing how much your home can sell for may make it tricky to decide on a budget for your next abode.
It will be a disaster if you purchased a new property before selling your current ones only to find that your current property could not reach as high a price as you needed. Thus, causing you to have to accept lower offers while taking on a bigger loan from the bank under desperation.
In this case, selling first gives you the luxury of time. You can wait for an offer you’re satisfied with, without the pressure of knowing you already bought (or are in the process of buying) a new house.
3. You Hold The Power To Negotiate
You’re in control of your property’s selling price. You don’t need to rush the sale or lower your asking price.
4. Funds Are Readily Available
Once your property is sold, you’ll have funds ready for your next purchase. It makes your property search twice as practical as you know your budget.
5. You’re In A Stronger Buying Position
When you have enough cash in hand, you can act fast in buying. This is often attractive to sellers, as you’re able to negotiate effectively to your advantage for a competitive price for the property.
The Cons:
1. Missing Your Dream Home
You might miss landing a deal for your ideal home when all your concentration is placed on selling your property first.
2. Priced Out
There’s a chance that property prices have already spiked between the time you sell and buy. You could end up paying more for your new home.
3. Potential Rental Cost
You may need to pay for rent until you have bought your new home and get caught up in the hassle of multiple moves in a short period of time.
The Pros and Cons of Buying Your Property First
The Pros:
1. Save Cost on Temporary Housing and Avoid Extra Rental Charges
Temporary housing can be expensive and having to move twice is perhaps one of the biggest inconveniences of selling first.
If you are unable to find a right home in time, you may risk prolonging your property buying journey. With this, your temporary housing option may not necessarily hold out all your stuff.
And you risk forking out extra funds to pay for your temporary housing in the meantime. So why not fast-track the experience and move directly into your new space and proceed with listing your old home once you’ve transitioned completely.
2. Forgo the Burden of Moving Twice or Making Multiple Moves
With no pressure to move out of your existing home now, it saves you the cost of rental and you get to avoid the hassle of moving. Especially if you are with big extended families alongside old folks and kids. It isn’t worth the risk if you are unable to find a right home in time.
Having to move multiple times will cost more and it will be a hassle to you and your family.
3. Secure Your Dream Home
You may secure your ideal home once you found the one you love. If you wait to sell your current home first, you may risk losing your dream home.
4. Skip Inconvenient Selling Tactics
You can move out first and have all the time to prepare for a spotlight-ready property showroom for potential buyers who want a house tour.
The Cons:
1. Two Mortgages
You will have to pay two mortgages at once if your current property is not selling quick enough. You could get a bridging loan to cover the transition, but the rates might be high.
2. Quick Sale
Due to financial concerns, you may rush in for a quick sale, which might lead you to accept a lower offer or a rushed decision.
3. Extra Cost
In a slower market, the selling process might end up taking a longer, which can lead to a burden costing.
Avoid A Rushed Home Purchase
You can take your time to search for a right property if you are easy and steady. This can be especially helpful if you’re selling in a highly seasonal real estate market. If it takes a long time to find a home you like, you won’t have to spend an extended period of time settling for temporary housing.
It’s possible that you’ve already found a home you love and the risk losing your dream home will be there if you wait to sell your current home first.
Skip Inconvenient Selling Tactics
Instead of trying to keep your home show-ready while inhabiting, you can move out first. Afterwards, bring in a professional staging company to stage and decorate. This will save you the hassle of having to leave the house in hurry every time someone wants a tour.
Next, if your finances permit, it may be beneficial to buy first, then sell. Since you’ve locked in a new unit at a good price, your risks in selling your old one are moderated.
BONUS SECTION: ABSD and How It Affects Your Buy or Sell First Plans
Alas, whether you’re looking to buy first or sell first, one thing to keep in mind is the Additional Buyer’s Stamp Duty (ABSD). First introduced in Dec 2011, ABSD is a tax levied on top of the Buyer’s Stamp Duty (BSD) for all residential property purchases.
It is meant to be a ‘cooling measure’ to discourage the purchasing of multiple properties and in flipping them around for profit, all to keep property prices affordable.
This means that when home buyers purchase a second property and exercise their option to purchase, ABSD will be applied for home buyers who have two properties under their name. But if the current property is first sold within six months, they can apply for its remission as soon as their buyer exercises their option to purchase.
If buying first is on your agenda, the ABSD is applied at 17 per cent for Singaporeans and this could be a lot of money if your upcoming home is already taking a chunk of your funds.
So whether you should buy or sell first, there really is no easy answer. It is up to you to weigh the pros and cons.
But in case you’re looking for loopholes (legally of course) and finding your way around avoiding ABSD, here is what we recommend.
1. Getting One Property Each
This is the simplest and no-nonsense method for couples. But this may take time, which is to buy and own one property each.
If you want to, simply buy and pay for one property per spouse. Put the first home under one spouse, then pay it off. Later on, when you are able, buy another property under the other spouse’s name and Voila!
You now have two properties and you managed to skip paying the ABSD.
2. Sell Off Your Current Property Before Purchasing
Another straightforward way to avoid the ABSD Is by selling off your current home before buying that new property. This way, you won’t ever have to deal with paying ABSD.
Although this would mean that you need to find a temporary place to rent while you wait for your next purchase.
Ultimately, the decision to buy a property first or to sell your current one first depend upon your own circumstances and the conditions of the market at any given time. With that, it is always wise to ask yourself these questions before you choose what’s best for you.
1. Why are you moving? Is securing an identified home at your ideal location more important or could you wait it out?
2. How far along is your risk tolerance?
3. How familiar are you with the current market, and what’s your informed view on its future directions?
4. Are you ready to cope with undesirable situations such as renting while you wait to purchase your new home?
5. What kind of financial position are you in? Could you afford the bridging finance?
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representative.
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