Selling a Home
Thinking about selling
Is it best to buy another property before you sell your existing one? Or to sell before you buy? Is it possible to do both at the same time? This section covers these three options and highlights some things you may need to consider when it comes to selling. There is also some discussion on government taxes and charges, but remember you should consider seeking independent financial advice before you embark on the selling process.
Selling your home before you buy another property
One benefit of selling your own home before you buy is that you know how much money you have to play with, and you can wait for the right price.
The downside of selling your own home before you buy is that you may be forced to rent while you look for a new home and then you may have to move twice (i.e. to your rented home and then to the property you buy). This is both time consuming and costly (i.e. cost of two moves, two utility connections etc). However, you may be able to avoid this by negotiating a long settlement period with the person buying your house.
Another risk of selling before you buy is that property prices may rise while you are 'out of the market', which means you will get less for your money when it's time to buy. The longer the gap between buying and selling a home the bigger this risk will be (although in a flat or falling market this may not be the case).
Selling your own home after you buy another property
If you are financially set up, and don't need a quick sale, selling your own home after you buy another property can be advantageous. You can avoid the cost and hassle of having to rent and move twice before buying your next property.
Alternatively, some people find their dream home and simply must have it, so to get the property they must buy the house before they sell. You might want to ask the vendor for an extended settlement so you have more time to sell your own home. This may be ideal for the vendor too, who may be looking for another property to buy.
The major disadvantage of this option is that you don't know how much your property will sell for and how quickly it will sell. You may be forced to accept a lower price in order to sell the property in time for settlement. If people know that you are committed elsewhere they may play on your fears and offer a reduced price. So, it is a good idea not to tell prospective purchasers that you have bought a property elsewhere.
If you overestimate the price of your home, you may find yourself in financial stress as your new mortgage repayments may be much higher than you expected (or can afford).
If you don't get your asking price and cannot sell your home in time for the new property's settlement, you may need to get bridging finance.
What happens if I delay payment to vendor?
The contract of sale will include a completion date, normally 42 days after a contract is signed, and if you have not paid by this date, you'll be up for interest on the balance outstanding - typically 10 percent a year, calculated daily. However, if you ask your solicitor to contact the vendor's solicitor they may be able to come to an agreement to extend the terms and/or waive the interest payments.
What happens if I get the jitters and don't want to get bridging finance and want to 'pull out'?
You will lose your whole deposit. Also, if the vendor does not attract the same price in a subsequent sale within 12 months, they may sue you for the difference, and for any reasonable costs incurred in the sale. Alternatively, the vendor may sue you for breach of contract.
Buying and selling at the same time
There are many issues to consider when you are buying and selling a home at the same time. You aim is to get the highest selling price for your home, while not paying too much for the new property you are buying.
Timing is also important, as ideally you want the buying process and selling process to be close together. The perfect situation would be where settlement on the new property occurs on or a few days before settlement on the old. This way you avoid having to move twice, which is costly and time consuming. If you're property is not sold by the settlement period of your new property, you may need to take out bridging finance.
Bridging finance
Bridging finance is a loan that enables you to buy a new home while waiting for the sale of your existing property. With bridging finance you effectively 'own' two homes at once, as well as two mortgages.
What happens if you've been on bridging finance for a few months, and selling your property is taking much longer than expected?
This can be a very stressful time and you'll need to consider your options very carefully. There are many options available to you and you should seek professional advice from your accountant and/or lawyer.
Some of your options may be:
- To keep paying off two mortgages, while you are waiting for a sale. This requires a very large cash flow, and for most people is not practical or possible.
- To sell your property at a reduced price. Be sure to do your sums properly and ensure that you can afford the higher level of the new mortgage on your new property.
- If you cannot afford the increased mortgage, by accepting a lower sale price for your property, consider the option of asking a relative or friend to buy the property in partnership with you. Click here for some things to remember when buying property in partnership with other people.
Government taxes and charges
Capital gains tax (CGT)
A capital gain or loss from a dwelling is ignored for CGT purposes if the dwelling (e.g. a home, an apartment/flat, a strata title unit) was your main residence throughout the ownership period. However, a capital gain or loss may still arise if the dwelling was also used for income-producing purposes. If this arises, you might be entitled to obtain a partial CGT exemption.
Where there is a capital gain, you might be entitled to a 50% discount on the amount of the capital gain for CGT purposes provided that you have owned the CGT asset for at least 12 months.
Go to the Australian Taxation Office website for more information on CGT.
Property Title transfer
When property is transferred from one owner to another, a 'Land Transfer' form must be lodged and registered with the appropriate State Titles Office. It is this document that records change of ownership.
Your solicitor/conveyancer will usually arrange for the transfer of title deeds, for which there may be a relatively small administrative charge. The cost to register title varies in each state/territory.
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