Are you selling a property to finance a new purchase? Consider these key issues first. This video covers timing, finance and other issues to be aware of before buying one property and selling another at the same time.
Watch here: https://youtu.be/zJKApNxZbOI
TRANSCRIPT
Buying a Property – Buying and Selling Properties At The Same Time?
This is the one of a series of videos I will be presenting on this topic setting out small-ish chunks of the legal process involved, which is also known as “conveyancing”. Today I’m going to talk about issues to consider when you are looking to purchase a property and also have an existing property you would like to sell. Now, in Australia, the laws around property purchases are state-specific so if you are interested in buying a property located in NSW, this video is for you!
The first point to note is that this video series deals with residential property only, such as a house, unit or block of land and not with any type of commercial property.
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A quick disclaimer that my videos are general and informational in nature only. They are not intended as legal advice, nor should you rely upon the content as legal advice. Please see the full disclaimer in the description box below.
Now, that said, lets dive right in:
If you are looking to purchase a property and you have an existing property, you first need to consider whether you will be selling the existing property and using the sale proceeds to finance the purchase of your new property.
If you do decide you’ll be buying and selling, you need to think about the TIMING of each transaction, i.e. whether you want to receive the money from the sale of your existing property before you look for a new one or whether you would like to try and buy and sell at the same time, which results in what we call a “simultaneous settlement”.
Normally, when you enter into a contract to purchase a property, there is a period of 42 days or 6 weeks between what is called “exchange of contracts” or simply “exchange” when you hand over the deposit and the contract becomes legally binding on you and the seller (who’s known as the vendor) and the completion of the purchase, which is known as settlement. Now, this period may be longer or shorter depending on what you and the vendor agree to but usually this settlement period is 6 weeks long to allow the vendor and purchaser’s solicitors and the lender to prepare everything they need to prepare to transfer the property from the vendor to the purchaser on the settlement date.
So if you’ve found the ‘one’ – a property you’ve fallen in love with before you’ve sold your existing property, and you don’t want to risk losing it, you may wish to try to negotiate with the vendor, before you sign the contract, to agree to a longer settlement period, maybe two or three months (or more!) to give you more time to also sell your property in the interim. The vendor may or may not be willing to agree to this, of course, but it is an option to consider trying.
One issue to keep in mind if you do decide to go ahead and enter into a contract to purchase a property before you’ve sold your existing one, you may be under more pressure to sell your property quickly and may therefore settle for a lower sale price.
The major risk of a simultaneous settlement is that if the sale of your current property falls through, for whatever reason – it does happen! – you may not be able to complete the purchase of the new property and there may be serious legal consequences for you, like breach of contract, if this happens. There have been many instances of people having packed all their belongings into a removalist truck which is sitting outside the new home waiting for the sale of one home and the purchase of the other to be finalised simultaneously, when something goes wrong – the sale of their property falls through and they can’t complete the purchase of the new home so they can’t move in and depending on the circumstances, this may lead to a serious breach of contract! It’s just something to be mindful of when deciding which path you want to take regarding the sale of your existing property to finance your new purchase.
The other option, of course, is to first sell your existing property, pocket that money, and then enter into a contract to purchase your new property. One practical issue with this scenario if you’ve sold the home that you are living in, is that there will be a gap between the sale of your home and the new purchase where you may need to rent somewhere or stay with family or friends until you’ve found a new property and that purchase is completed. Depending on if you are upsizing or downsizing, you may also need to arrange finance (such as a home loan) for the difference in purchase price or you may have surplus funds left over.
Another point to consider if you are selling an existing property to finance the purchase of a new property and you want the sale to happen simultaneously is whether you need to use the deposit paid by the purchaser of your property to pay all or part of the deposit on the new property you wish to buy (if you haven’t saved for that separately).
Normally, the deposit that is paid at exchange of contracts is held by the real estate agent or solicitor for safekeeping until the purchase is completed, so there are rules around this alternative situation which we call a “release of deposit”. You should alert your lawyer to the fact that you need to use the deposit paid by the purchaser of your property in this way so that your lawyer includes a release of deposit clause in the contract they prepare for the sale of your existing property. Basically, the purchaser of your property needs to agree to the deposit that they’ve paid being released to you early so that you can use it to pay a deposit on the purchase of a new property. You won’t be allowed to use that money for anything else, other than paying a deposit or stamp duty on a new property. As a vendor, a clause like this is in your interest but be aware that as a purchaser there are major risks with agreeing to a release of deposit clause (which I will cover in another video)…
So, that’s all I have for you today – which method do you prefer? Sell first, then buy or buy and sell at the same time? Let me know your thoughts in the comments below!
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