South Africans selling their home face a difficult choice

The decision to sell a current home before buying a new one is challenging and depends on South Africans’ finances, market conditions, and risk tolerance.

Cobus Odendaal, CEO of Lew Geffen Sotheby’s International Realty in Johannesburg’s Randburg/Craighall, said this is one of the most common dilemmas faced by homeowners thinking of upscaling, downsizing or relocating.

Selling a current home before buying a new one or buying first and then selling each have their own benefits, risks, and timing considerations.

Navigating this decision involves considering several factors. This includes the pros and cons of each approach, financial strategies like bridging finance, and how to enlist expert advice on managing the logistics of moving in today’s dynamic market.

There are a few key benefits to selling before buying a new home. Selling first gives certainty about how much property owners can spend on their next home.

In addition, this route makes it easier to get a bond on the new home, as banks may be reluctant to approve a second bond.

Therefore, this option also gives stronger buying power when buying a new home. In a competitive market, having cash in hand or an approved bond makes someone a more attractive buyer.

However, selling first also has some drawbacks. Selling before buying a new house may mean that buyers need to use temporary housing, such as short-term rentals, if they don’t find a new property in time.

This can be costly and disputative. It may also further increase the pressure to buy a new home quickly, which isn’t ideal and could lead to rash decisions.

Odendaal explained, however, that selling first is often the safer route, especially in uncertain markets.

“It gives you financial clarity and puts you in a stronger negotiating position when buying,” he said. “However, the key is to work with an agent who can accurately time your sale and purchase to minimise gaps.”

Buying before selling

The second option is buying a new home before the current one is sold. This allows sellers to move directly from their old home to their new one without temporary housing.

It also gives property owners more time to choose where they would like to move to, as there is no pressure to rush a purchase.

However, this also comes with financial risks. If the current home takes too long to sell, homeowners could be stuck with two bonds.

This also makes it more difficult to get bond approval in the first place, as the owner’s debt-to-income ratio may discourage banks from offering new financing.

Additionally, there may be challenges if the old home sells for less than expected, leaving the sellers with a shortfall.

Even if selling the property immediately isn’t a priority, property agents have reported that overpricing a home when it is first listed often results in it staying on the market for a much longer period. This is the case even if the price is eventually reduced.

Odendaal cautioned that buying first can work if the owner has significant financial flexibility, but it’s risky if the market is slow. “Bridging finance can help, but it’s expensive and should only be used as a short-term solution,” he said.

Odendaal explained that bridging finance is a short-term loan that unlocks equity in the current home before it sells, helping owners cover the deposit or purchase price of their new property.

It is useful in the following scenarios:

• The seller needs funds from the sale before the transfer
• The seller must pay a deposit quickly
• The seller is waiting for the bond registration

However, South Africans should remember that this type of financing comes with higher interest rates and requires proof of expected sale proceeds. Fees typically last one to three months.

“Bridging finance can be a lifeline,” Odendaal said, “but it’s not a long-term fix. Always consult a financial advisor to ensure it’s the right move for your situation.”

He pointed out that there are some key questions that South Africans should ask themselves before deciding to use bridging finance.

This includes whether they need the sale proceeds to buy the new home, how fast homes are selling in their area, and whether it’s a buyer’s or seller’s market.

Whether two bonds are temporarily affordable and whether there is a backup plan for temporary housing are also important considerations.

Managing logistics

Whether homeowners decide to sell or buy first, logistical challenges and considerations need to be taken into account.

When selling the old home first, Odendaal suggested negotiating an occupational rent” clause to stay in the house if they need more time.

Arranging storage for belongings in case of a gap between moves can also help make the transition easier. He stressed that homeowners following this route should start house-hunting as soon as their home is under offer.

On the other hand, if homeowners buy their new home first, Odendaal recommended listing the current home immediately after securing their new property, and pricing it competitively to attract quick offers.

Working with an experienced agent can help streamline the process and recommend an appropriate listing price.

“Market conditions play a huge role,” Odendaal added. “In a fast-moving market, selling first reduces risk. In a slower market, buying first might work – but only if you’re financially prepared.

He explained that in a seller’s market, the demand is higher, which makes it easier to sell a property quickly.

“A buyer’s market means there’s more supply available, and you need to take into consideration that homes might take longer to sell, so buying first could be an option if it’s financially viable,” he said.

Odendaal said that there is no one-size-fits-all answer. “The right choice depends on your finances, market conditions, and risk tolerance,” he said.

Odendaal’s rule of thumb is as follows:

• If someone needs their sale proceeds to buy, sell first.
• If someone can afford two properties temporarily, buy first, but always have a backup plan.

“Consult an experienced agent early in the process. They can provide local insights, help time your transactions, and guide you toward the best decision for your unique situation,” Odendaal said.