Moving home: buy or sell first?

Many Portuguese families who are thinking of switching houses are faced with a dilemma: buy first and sell later, or sell first and buy later. If you buy first, you run the risk of not being able to sell your home at the price you anticipated and having a problem on your hands. If you sell first, you run the risk of getting the day of the deed and having nowhere to go. What to do then?

Although there are no right answers, I share with you some ideas for your reflection that I hope can help you make the best decision.

How much is my home worth and how much can I spend on the new home?

Before making any decision, you need to know the value of your home and the maximum value of the home you can buy. I recommend that you follow these steps:

  1. Knowing what your home is really worth. Not the value you would like it to be worth, but the value the market would be willing to pay if it were traded today. It is advisable that this value is calibrated by the value of the bank appraisal, because most likely the buyer of your home will ask for financing, and if the appraisal falls below the sale price, the business may fall. We provide one of the best simulators on the market here;
  2. Determine the net value you are left with after selling your home: discounting the amount you owe the bank, the value of the real estate commission and taxes (only VAT on the commission, assuming it is your own home);
  3. Define the cap for the house you want to buy: if you are going to use bank financing, you should involve your financial advisor to make simulations of the financing price and define the maximum value for the house you want to buy. Currently, banks are financing up to 90% of the minimum value between the appraisal and deed values. Your financial advisor will help you work out the total amount of the installment charges, including fees, insurance and taxes. In addition to these costs, you will also have to bear the costs of the deed (fees, registrations, fees), and the IMT and Stamp Duty (you can determine the value of the IMT here:

Now that you have this information, you can decide to buy or sell first, and depending on the option, I will give you some tips that can help to minimize the risk.

If you have equity in at least 20% of the value of the house you want to buy and you anticipate that prices will remain stable or rise, you can choose to buy first and sell later. Otherwise, the best option is most likely to sell first and buy later.

Sell first and buy later

Imagine that selling at this stage of the market might make sense for you because you will get a better deal than the risk of waiting a little longer, and seeing prices drop. So it might make sense to negotiate some considerations with your home buyer and think of a plan B in case you can’t buy a home before the deed of yours.

Here are 3 tips you can use as a Plan B:

  • Extend the term of the deed: negotiate with your home buyer to extend the term of the deed for a reasonable period of time until you find a new home, for example 4 months;
  • Negotiate a lease option for your home: negotiate with the buyer a temporary lease after deed, if you cannot find a home by the date of deed, for example another 3 months. There are buyers who are also struggling to find the right home for their family, and are willing to wait a little longer to keep your home;
  • Temporary lease: if you cannot find a house before the deed, you can choose to temporarily lease a smaller house and place your home’s contents in a warehouse. Even this lease may be in a cheaper area and in a smaller house, as it is temporary.

Buy First, Sell Later

When you buy first and sell later, it is important that you have enough equity to cover the risk of not being able to sell your home at the price you initially expected. In addition, it is important to be realistic about the price and not fall into the temptation of evaluating your home by the values you see other homes for sale on real estate portals.

Just recently I came across a house that was put on the market for €700,000 and sold for €480,000 (after 14 months). This last value is not visible on real estate portals.

  • Home Exchange Credit: some banks offer a credit solution that allows you to first look for the home you want to buy, and buy it before selling the current one. To do this, they combine the two financings into one, but only part of the new credit charges are paid, for a period that can go up to a few years. This gives you enough time to sell your home. Note that if the market is at risk of falling prices, selling today may be better than selling tomorrow;
  • Buy an off-plan home in a new development: typically most homes in new developments are sold off-plan (those left over at the end are the worst options). If you buy a year or two in advance, you know what you can count on. Even assuming a slippage of a few months, it will be easier to manage your home sales timings.

Want to discuss these options without any commitment? Book a meeting now with me via zoom .

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