5 Questions to answer before buying or selling
Is it better to buy or sell first?
Some sales campaigns can take longer than expected and can also produce a lower price than hoped for. If you buy before selling in the expectation that you will sell for top dollar in a short time frame, your plans could come unstuck. It is safer to sell first, get a delayed settlement and use the settlement period to purchase a home. You are better off buying under pressure than selling under pressure.
What if the market falls?
Buying real estate is a long term play – or should be. During your ownership of a property, the market will move up and down at different times. No asset class enjoys consistent rises. Market corrections are a normal phase of the cycle. The key is to buy the right property at the right price. The right price is both fair market price and a price that you can comfortably afford mortgage repayments, even if interest rates rise.
How do we determine fair value in the current market?
Attend open inspections and auctions. Watch the market and disregard the commentary. The real estate agents view on the market is often overly positive, the economists view is unduly negative and the auction clearance is simply a fudged number, given the number of unreported auction campaigns that failed.
Different segments of the market are stronger than others at present. By being vigilant, you will quickly grasp what the market is doing in your category. It’s not rocket science once you know where to look.
What if interest rates do rise? Interest rates probably won’t rise anytime soon. But what if they did?
The retail banks will often ask this question on the borrower’s behalf when processing their loan. It is one of the ways they stress test your ability to continue meeting the repayments. Given the record amount of household debt, how would rate rises impact the market at large and your own finances on a smaller scale?
Interest rates probably won’t rise anytime soon.
Is it better to wait before…? Wait on what basis – you hope to buy for a lower price next year?
Or you think the market will rise again in 2022 allowing you to sell for an even higher price? The reality is, no one knows. The market today is the market. Tomorrow’s market is anyone’s guess. There is a reason to act today and there is a reason to wait. Only hindsight will be able to identify the right answer, if there is one.
Speculators tend to win big in rising markets and get cleaned out in falling markets. Lesson being – don’t speculate on making easy short term gains with real estate.
By Peter O’Malley
