IS it better to sell or buy first in Melbourne’s booming property market?

With median house prices growing more than 25 per cent in the past year in some of Melbourne’s in-demand suburbs, Realestate asked industry experts about the benefits and risks surrounding the order of dealing in the marketplace.

BUYING FIRST

Benefits:

Advantage Property Consulting director Frank Valentic said it made financial sense to buy first and sell later in a rising market.

“Buy first to get it at a better price (before prices rise) and sell later — it could make you tens of thousands of dollars,” Mr Valentic said.

“Try to only move once by getting the settlement dates to dovetail, so try to buy on a longer settlement to have more time to sell and then sell with a shorter settlement.”

Realestate.com.au executive general manager Andrew Rechtman said selling after buying could save those who could afford to pay two mortgages during the crossover period the stress and cost of finding short-term accommodation or having to store goods.

ME Bank head of home loans Patrick Nolan agreed buying in Melbourne’s rising property market meant “beating the higher property prices further down the track”.

“If you see a place that you know is just right for you or which has truly unique features, you can grab it now knowing you won’t miss out to other buyers,” he said.

Risks:

Mr Nolan said vendors could find themselves with a funding shortfall if their existing home sold for less than expected.

“You could feel rushed to sell your current home, even accepting a price below your expectations,” he said.

Mr Valentic agreed selling second was “one of the most scary” situations.

He said vendors who did not have a back-up plan or bridging finance could find themselves in a fire sale situation.

“Have a buffer if you’re selling second because you don’t want to overcommit,” Mr Valentic urged.

“Do your due diligence and work on a base price that is lower and don’t over inflate it so there is a buffer where you’re not stressing and getting into financial stress.”

Mr Valentic said the type of property and location Melburnians were buying and selling into could impact the order of selling.

“It will be easier to sell a home with a backyard more than an apartment,” he said.

“The family home market is quite different to the apartment and unit market.

“Houses are taking about 29 days to sell but apartments are about 60 days, so make sure you factor that into the selling time.

“Sometimes the settlement might not align and you might need to find other accommodation for a few weeks. I’ve had clients move into short-term apartments for the interim.”

SELLING FIRST

Benefits:

Given there was no immediate pressure to sell, Mr Nolan said vendors who had not yet bought another home could hold out until they received an offer they were happy with.

“With sale proceeds from your home locked firmly in the bank you know exactly how much you can spend on the new place,” he said.

“Adding to that, stashing your sale proceeds in a high interest savings account lets you earn additional income while searching for your next home.”

Mr Valentic agreed buying second was sometimes a safer option because people knew how much money they had to play with.

He said there was not such a “mad rush” to beat price rises if looking to buy a unit or apartment, with CoreLogic figures showing Melbourne units have grown 0.2 per cent in the 12 months to December.

Risks:

CoreLogic records show Melbourne’s median house price grew 5.6 per cent in the 12 months to December.

Given the rate of growth and strong buyer demand — with many agents reporting multiple bidders at every auction — Mr Valentic said some buyers could find themselves fighting to get back into the market.

“It could cost you tens of thousands, if not hundreds of thousands of dollars to get back into the market with runaway prices,” he warned.

“I know people who have had to rent because they were priced out of the market.

“People hope the prices will slow down but find they miss the boat or have to move into different areas.”

Mr Nolan agreed Melburnians who sold before buying could find themselves struggling to meet the market.

“If property values continue rising you could end up paying more for your new home,” he said.

NUMBERS ADD UP

WHEN it comes to selling and buying the family home, vendor Mario Borg knows all too well the emotional toll involved.

Weighing up Melbourne’s hot property market, Mr Borg and his wife Liliana made what some would consider a brave choice to buy their next family home before selling their existing one in Elwood.

The couple bought their dream home in mid-February with a four-month settlement to allow them time to sell their three-bedroom, two-bathroom house.

Fortunately, it sold under the hammer last weekend for $1.9 million, and Mr Borg is trying to secure settlement for early June.

Mr Borg said for his past few property transactions, he considered how Melbourne’s property market was tracking before deciding to buy before selling.

“I look at the clearance rate for the suburb you are selling in,” Mr Borg said.

“Melbourne is hovering around 80 per cent but some suburbs are nearly 100 per cent, whereas others are 60 per cent.

“I was confident (our house) would sell at auction, if not soon after. If the market wasn’t as hot, you might be more cautious about buying first.”

Mr Borg said it was important to have a back-up plan in case the settlement time frames did not line up.

“Having built up a fair bit of equity in my portfolio, I had finances to fund the shortfall as bridging finance is more costly,” he said.