Often, buyers are frustrated in the home upgrading process due to the inability to secure the unit they like. In our course of work, we come across many who are trying to buy a home FIRST before they sell their property.
In this article, we explain why sellers generally are unable to accept their offers and what it means for the sellers. We also offer a solution on HOW to sell and buy concurrently.
Recently, we did an open house which attracted 7 groups of buyers. By the end of the day, we had some offers which were close to the seller’s asking price.
However, the big catch was… the majority of the offers came with conditions requesting for sellers to give them an extended option period of up to 6 months. This is to facilitate the sale of their existing properties before they exercise their option.
The seller rejected the offers which were close to the asking price and accepted the one with no conditions attached even though it was lower.
Isn’t making an offer at the asking price good enough?
Why do sellers reject conditional offers with reasonable offer prices?
Many buyers fail to understand the seller’s point of view because they think that the price is everything. Let’s step into the seller’s shoes.
If the Market deteriorates over next 6 months:
The buyer can decide to forgo the purchase and give up the option fee of 1- 2%. There’s a limit to their loss. But what about the seller? It is very possible to lose 3-20% of the property price over the course of 6 months.
If the Market improves over the next 6 months:
If property prices continue to rise by 3-5%, the buyer would have locked in at current prices and made a paper gain but the seller cannot rescind the option that was issued out.
Therefore, whichever way the market goes, it is not to the seller’s benefit. A typical resale property transaction takes anywhere between 10 – 12 weeks to complete. We are all too familiar that market conditions can change month on month, let alone 3, 6, 9 months down the road.
What considerations should the upgrader buyer have?
If you are a buyer, these are the questions you should consider:
- Have you engaged a professional to assist them in preparing your unit for sale? Have you been advised about the optimal listing price?
- Have you done your financial calculations on expected sales proceeds from the sale of the current home?
- What if your current home cannot be sold within the agreed time frame? Would you lose your option money?
- Have you thought of alternative accommodation for your family in the event that you sell your existing home and need a place to stay before gaining possession of your new home?
Many of the upgraders we meet tell us that if they sell their existing home first, they fear that they are unable to find a suitable new property. This is by far the biggest stumbling block in every upgrader’s situation. There is NO perfect situation. One cannot have the best of both worlds.
What are the options for an upgrader?
- Find alternative housing arrangements available in the form of parents, relatives or friends and sell the existing property.
- Buy the new property, setting aside ample cash to pay ABSD (Additional Buyer’s Stamp Duty) and sell the existing home. Buyers can apply for a remission/refund from IRAS if they are able to sell their existing property within 6 months of exercising the option for the resale residential property; provided the existing residential property is their sole marital home and the new property is also bought under joint names.
- Sell the existing home, rent a place for 6-12 months while shopping for a new home simultaneously. Remember to set some time allowance for renovation.
- Plan your TIMELINE strategically by having a longer completion period for your sale, and early possession of the new property. We strongly advise to consult experienced agents as any mistake in the timeline can result in you not having a roof over your head for a while.
In our experience, in order not to waste your time and efforts, and experience deep disappointment at not getting your desired units, it is better to have a plan first and choose one of the above options. In this particular instance, the listing we mentioned was sold on the first open house in the evening. If you have conditions attached to your offer, you may be sorely disadvantaged.