Buying or selling property is often considered one of life’s major stresses. When you buy and sell property at the same time and try to complete both transactions together, this can add considerably to the stress. This is generally known as a simultaneous settlement and is encountered often in conveyancing.
Why settle simultaneously if it is so stressful?
Most people are not in a financial position to buy a new property without first selling an existing property and rely on the funds from their sale before completing their purchase. If you are moving from one property to another, and both transactions can settle at the same time, there can be benefits such as:
- you only need to move once, saving time, removalist and/or storage costs;
- you won’t need alternate accommodation, saving on rental costs or avoiding the inconvenience of staying with family or friends until a new home is found;
- the loan for your existing home can be refinanced and replaced with a loan for your new property in the same transaction;
- arrangements can be made to disconnect and reconnect certain services from your existing home to your new home, ideally, in one transaction.
What happens at a simultaneous settlement?
The sale of your existing property is completed at the same time as the purchase of your new property. These transactions need to be meticulously planned and coordinated – if there are delays or problems with one transaction then the other is also affected.
The circumstances of the other parties (i.e. the respective seller and buyer of your properties) are also relevant. If they are in a similar position, then their issues also become yours.
Generally, on completion, funds from the sale of your existing property are collected and, if a refinance is involved, applied towards your purchase. The mortgage over your existing property is released by your lender and a mortgage is taken over the new property to secure the funds loaned.
Come settlement day, the transaction is usually orchestrated in a matter of minutes however the plan has been evolving for the past weeks or months. With the introduction of e-conveyancing, settlements are now conducted online without the need to meet with the bank and legal representatives of the other party.
Meanwhile, you have arranged for the disconnection and reconnection of services such as electricity and internet – you await nervously with a moving truck full of furniture and a lifetime of memories, for the ‘green light’ from your lawyer or conveyancer.
The considerations
A simultaneous settlement can have practical benefits however the legal implications must be considered. Once contracts are binding, the parties are legally committed to the transaction and face potential penalties for breaching the terms. Consequently, a buyer should not commit to purchasing a property without assurance that the sale of an existing property is a ‘done deal’.
Typically, a simultaneous settlement follows the entering of binding contracts for both your sale and purchase at the same time, with each contract providing the same completion date. Your legal representative can make the necessary arrangements and negotiate any additional conditions in the contract, if necessary.
Alternatively, your legal representative may be able to negotiate the inclusion of a ‘subject to sale’ clause in a purchase contract if you haven’t sold your property yet. Most sellers, however, will not accept this, particularly in a competitive market where other buyers are willing to enter an unconditional contract.
What are the options?
- Selling first and buying later may be a safer option, depending on your circumstances. The downside of this is that you will need to arrange accommodation while looking for your new home. The pros are that the funds from your sale can pay out your mortgage with the balance ready to be used for your purchase.
If your buyer is purchasing as an investment or is not in a hurry to move into your existing home, you may even be able to negotiate a leaseback of your property until you find a suitable home.
If you need to move in a hurry, for example, relocating for a new job, and you can’t sell quickly, renting your existing property on a short lease may also be an option.
- Buying first and selling later can be risky. Unless you are a cash buyer and/or own your existing property outright you will need to finance both properties. This would require looking after two mortgages and/or obtaining a bridging loan or the like, which is not always an option for all people. A bridging loan is a short-term loan used to finance a new property before selling your original home. Interest rates for bridging loans are typically higher than standard home loans and there may be additional fees involved, so it is important to consider the financial implications and get appropriate advice.
On the plus side, a bridging loan may enable you to get the property you want when it is available or provide an opportunity to utilise market fluctuations to your advantage. If, however, holding two loans becomes increasingly difficult or the term of the bridging loan nears its expiration, you may need to sell quickly accepting an offer below your expectations.
Conclusion
The current market generally influences how quickly you can buy and sell property suited to your needs. Your financial and personal circumstances will also influence your options. There is never a one-fit solution when buying and selling property at the same time. The important thing is to ensure that whichever option you choose you understand the legal and financial implications and are guided throughout the process.
A simultaneous settlement requires careful planning, good communication and negotiation skills and, importantly, a contingency plan. If one transaction falls over, then so does the other!
This information is of a general nature only, and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on 03 9726 9569 or email [email protected].