House sale and purchase - how to proceed?

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Forums › Finance and wealth management › House sale and purchase - how to proceed?

David321

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#314982 5-Jun-2024 07:09

Hi all,

My wife and I have had a few offers turned down on houses we would like to buy, we believe it’s the subject to sale clause we always use that is putting sellers off. We obviously need to sell our house in order to secure funds for the new place, but we did not want to go on the market before finding a place to move in to as we might end up homeless on settlement date. I know there is a clause that can be used that says we need to find a place before settlement, but I believe this could put buyers off.

We understand that becoming a “cash buyer” would give us much more chance of getting an offer accepted on a place so we are thinking of biting the bullet and getting our place on the market and sold, all while trying to find a place we like and getting an offer accepted.

The thing is, even between a contract on the house we are selling going unconditional and the settlement date I don’t think we would yet be considered cash buyers as the cash does not end up with us until settlement date? Which obviously is the day we have to move out.

We can’t get preapproved for enough to cover the price range we are looking to purchase in, so we need to consider the money we get from the house sale as part of our funds, but I would not be comfortable making a cash offer without the money from our house sale sitting in our account as its not guaranteed? I keep thinking what if for some reason between a buyer for our house going unconditional and the settlement date the buyer of our house somehow can’t get or does not have the money to send through the lawyers to us on settlement date and we are legally committed to the purchase of a property?

Say we had sold unconditionally and we were sitting between going unconditional and settlement date of our place, is there an appealing way to make an offer on a place, saying the money is pretty much guaranteed but you will only know for sure on settlement date? Or is there something I am missing here such as once the contract for sale on our place has gone unconditional the buyers bank has to guarantee we will get the money on settlement? Agents have suggested to us selling with a long settlement, which sounds appealing, but the catch is we would have to wait longer for the money, which may put the sellers of houses we want off our offers? I know settlement can be brought forward if necessary but what if our buyer did not agree?

Or is the only way to truly become a cash buyer to sell, wait for settlement, move in to temporary accommodation and then start making offers? I am hoping this is not the case as this would be a huge hassle for my wife and I with a toddler!

If any one has any info/advice surrounding this it would be much appreciated, there is so much to get our heads around!

_David_

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8325 posts

Uber Geek

#3244579 5-Jun-2024 07:23

"we believe it’s the subject to sale clause we always use that is putting sellers off. "

Do you have data to support your belief. or is it just a hunch,

Was your offer the same or better than the actual sale price?

Selling before buying means you have to find somewhere to live short term if the dates don't line up... this can be tricky especially in the current tight rental market..

trig42

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#3244581 5-Jun-2024 07:28

Once you have gone unconditional, you make the offer subject to finance.

Then, you deal with your bank on paying off the current mortgage and setting up the new one.

Once your bank approves your new lending, you can go unconditional on the house you are purchasing.

It happens all the time.

The issue you may then run into is a deposit, though if you sell your current house, you can use the funds from your purchaser's deposit as part or all of your deposit. Just be aware that the agent and lawyer will take their fee from the deposit you are paid.

We did exactly this last year. Put our home on the market (as we didn't want to have sale conditions on anything we wanted to buy), once we had an unconditional contract (and the agent had the deposit) we made an offer on a new house subject to inspection (completely normal) and finance - both within 2 weeks. We put the deposit at less than what we'd received from the purchaser of our current house (which was easy, the new house was less money than the old house).

On settlement day, the lawyers and the banks worked everything out. We had the keys to the new house by 11am. They do this all the time (not many people can afford to pay cash for a new house while they wait for the settlement on their old one).

David321

485 posts

Ultimate Geek

#3244585 5-Jun-2024 07:37

trig42:

Once you have gone unconditional, you make the offer subject to finance.

Then, you deal with your bank on paying off the current mortgage and setting up the new one.

Once your bank approves your new lending, you can go unconditional on the house you are purchasing.

It happens all the time.

The issue you may then run into is a deposit, though if you sell your current house, you can use the funds from your purchaser's deposit as part or all of your deposit. Just be aware that the agent and lawyer will take their fee from the deposit you are paid.

We did exactly this last year. Put our home on the market (as we didn't want to have sale conditions on anything we wanted to buy), once we had an unconditional contract (and the agent had the deposit) we made an offer on a new house subject to inspection (completely normal) and finance - both within 2 weeks. We put the deposit at less than what we'd received from the purchaser of our current house (which was easy, the new house was less money than the old house).

On settlement day, the lawyers and the banks worked everything out. We had the keys to the new house by 11am. They do this all the time (not many people can afford to pay cash for a new house while they wait for the settlement on their old one).

The thing is we can't get the full amount of lending we would need for the purchase price of a new place we are after, we need to top up our max lending amount with the cash from our house sale, which we don't get until settlement day.

So our offer would be subject to finance as you have said, but the sellers of the place would have to wait until our settlement day so we get the money to give them? potentially meaning our subject to finance clause duration would have to be from the time our offer is accepted until the time our settlement date with our buyers is? (could be weeks).

Or have I missed something?

_David_

muppet

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#3244586 5-Jun-2024 07:37

@trig42 This seems great in theory but it kinda limits the amount of time you've got to find a new house, doesn't it?

I mean what you did worked, but what if they'd declined your offer?

Once you've gone unconditional on your sale you can't walk that back because you don't have a new property.

What am I missing? Your plan just sounds like "Find a new place and get your offer accepted in the moving timeframe" which is great in theory. Do I misunderstand?

trig42

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#3244593 5-Jun-2024 07:45

No, no misunderstanding, that's correct.

Hopefully you have looked at a few houses and have some idea of what you want to buy, and their prospective prices.

We'd been looking for a while in the area we were moving to and had a pretty good understanding of the market.

We made our offer letting the agent know the settlement date was non-negotiable. In our case the two or three houses we were keen on were vacant our could be made vacant by settlement date easily (they were all houses being sold by people that had already moved. One was a rental.

If, like the OP, you feel that vendors are rejecting your offer because you have a sale clause in your contract, then you have to adapt. The only other option is bridging finance. I'd rather not go through that.

Maybe the OP is having their offers rejected simply because they are too low? Most vendors should accept a conditional offer, as they'll certainly put a cash-out clause in them (so they're able to take a better cash offer if one comes along while the purchaser tries to sell their home).

eracode

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#3244595 5-Jun-2024 07:47

David321:

The thing is, even between a contract on the house we are selling going unconditional and the settlement date I don’t think we would yet be considered cash buyers as the cash does not end up with us until settlement date? Which obviously is the day we have to move out.
Or is the only way to truly become a cash buyer to sell, wait for settlement, move in to temporary accommodation and then start making offers? I am hoping this is not the case as this would be a huge hassle for my wife and I with a toddler!

If you have an unconditional sale contract on your house, you can (and should) regard yourself as cash buyers - provided you have a new loan approved to cover any difference between the sale price and the new purchase price. Unconditional means unconditional and you don't need to wait to have the sale proceeds in your account. Unconditional means "as good as money in the bank".
This is not the case. This situation arises all the time and people never do what you are contemplating.

IMO you're overthinking all this and making it too hard for yourselves. It would probably help if you discuss this with your lawyer and/or your bank - because you're misunderstanding how this process works in practice.

Sometimes I just sit and think. Other times I just sit.

timmmay

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#3244597 5-Jun-2024 07:49

You should ask your lawyer these questions. Bridging finance would seem to be the way to go.

My wife used to work in property. There are usually so many offers that an offer with any condition is thrown away.

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David321

485 posts

Ultimate Geek

#3244598 5-Jun-2024 07:51

eracode:

David321:

The thing is, even between a contract on the house we are selling going unconditional and the settlement date I don’t think we would yet be considered cash buyers as the cash does not end up with us until settlement date? Which obviously is the day we have to move out.
Or is the only way to truly become a cash buyer to sell, wait for settlement, move in to temporary accommodation and then start making offers? I am hoping this is not the case as this would be a huge hassle for my wife and I with a toddler!

If you have an unconditional sale contract on your house, you can regard yourself as cash buyers - provided you have a new loan approved to cover any difference between the sale price and the new purchase price. Unconditional means unconditional and you don't need to wait to have the sale proceeds in your account. Unconditional means "as good as money in the bank".
This is not the case. This situation arises all the time and people never do what you are contemplating.

IMO you're overthinking all this and making it too hard for yourselves. It may help if you discuss this with your lawyer and/or your bank.

Ok, so you're saying that once a contract has gone unconditional there is no way at all the money would not end up in our bank account? If something went wrong for whatever reason and the money did not end up in our account and we had an unconditional offer on a place we would be liable to pay for that place without the money available to us?

_David_

eracode

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#3244603 5-Jun-2024 08:03

David321:

Ok, so you're saying that once a contract has gone unconditional there is no way at all the money would not end up in our bank account? If something went wrong for whatever reason and the money did not end up in our account and we had an unconditional offer on a place we would be liable to pay for that place without the money available to us?

Correct. If you have an unconditional sale contract and for some reason the buyer defaults and does not settle - which is extremely rare - you can sue the buyer for the money and consequential losses and costs.

For all practical purposes, your bank will regard your unconditional sale contract as money certain to be received.

If you have an unconditional sale and then enter into an unconditional purchase - and then your buyer defaults - you will still be liable to settle the purchase. However, as stated, this is such an unusual and rare situation that banks don't take that risk into account.

Sometimes I just sit and think. Other times I just sit.

David321

485 posts

Ultimate Geek

#3244616 5-Jun-2024 08:57

eracode:
@david321 Here is a NZH story about an unconditional sale where the buyer failed to settle and was sued by the vendor. The decision against the defaulting purchaser covered the purchase price, consequential losses, interest and other costs.

Thanks for that, I can't read the article as its behind a paywall, if that potentially happened to us and the person simply diddnt have that kind of money (our house is cheap so will more than likely sell to a first home buyer) i think a court order wouldn't help us out much as they simply wouldn't have the money to compensate us, they would probably be told to pay it off weekly while we are still liable to fulfill our purchase?

_David_

Senecio

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#3244620 5-Jun-2024 09:04

Your current place, is it likely to appeal to an investor?

This clearly won't work for everyone but my wife and I were in a similar situation about 15yrs ago. We absolutely wanted to avoid any form of bridging finance or any chain of any kind so we put our house on the market first. When the offers came in we reviewed them and narrowed it down to two offers. One of them was an investor so we negotiated with them. We agreed to sell them the house on a very short settlement in exchange for them agreeing to rent the place back to us at slightly below market rate for up to 6mths with no commitment. As soon as we found our next house we could leave on short notice. It was a win-win. We were able to free up the equity in our house to confidently make offers on our new house and we didn't have to move twice. They got the investment property they wanted and reliable short term tenents immediately post settlement. In the end it only took us about 4 weeks post settlement on our place to have an offer accepted on our new place and we moved in 4 weeks after that.

I absolutey believe that our offers not being subject to the sale of our home were the differentiator in why we were successful with the offer we made on the place that we bought.

David321

485 posts

Ultimate Geek

#3244627 5-Jun-2024 09:20

Senecio:
Your current place, is it likely to appeal to an investor?

This clearly won't work for everyone but my wife and I were in a similar situation about 15yrs ago. We absolutely wanted to avoid any form of bridging finance or any chain of any kind so we put our house on the market first. When the offers came in we reviewed them and narrowed it down to two offers. One of them was an investor so we negotiated with them. We agreed to sell them the house on a very short settlement in exchange for them agreeing to rent the place back to us at slightly below market rate for up to 6mths with no commitment. As soon as we found our next house we could leave on short notice. It was a win-win. We were able to free up the equity in our house to confidently make offers on our new house and we didn't have to move twice. They got the investment property they wanted and reliable short term tenents immediately post settlement. In the end it only took us about 4 weeks post settlement on our place to have an offer accepted on our new place and we moved in 4 weeks after that.

I absolutey believe that our offers not being subject to the sale of our home were the differentiator in why we were successful with the offer we made on the place that we bought.

Sounds like a great situation, but very unlikely to be the case for us unfortunately.

_David_

Eva888

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#3244631 5-Jun-2024 09:48

Most of the time settlement day means just that and the cash is in the bank on time. However there can be odd occasions when someone decides either to back out of the contract or circumstances change like a death or accident or they go bankrupt like in the case of a developer buying a property and many other scenarios that are rare but can happen.

Although it’s meant to be a sure thing to have a cash offer in hand with a settlement date there are those rare times when it won’t go ahead, so I completely understand your anxiety. There are legal remedies for non settlement and the Courts are tough on those that don't but that takes time and money and a lot depends as you mentioned, on if they have assets to remedy.

The market has slowed down for selling now so buyers are scarcer and you don’t want to become part of a chain of people buying on condition of selling their own homes.

A lot also depends on your personal circumstances so things to consider are, do you have relatives guaranteed and willing to be a back stop if things turn sour. Would your bank consider bridging finance and can you afford to pay this while waiting. Would your lawyer be willing to cover you with trust funds if anything unforeseen happens to a sale.

In the meantime only make offers that are subject to a settlement completed on your own house and get advice on the exact wording to ensure that it’s clear you will not go unconditional unless cash from the sale of your property is in the bank. If you are very nervous or risk averse the best decision is to wait till settlement on your house happens and then shop with cash in hand which also means that you could get a much better deal and can bargain.

If you wait until your house settles you can rent an Air B and B or go to a cheap motel for two months if you don’t have anyone to stay with. It’s winter and rental prices will be very negotiable for long term.

David321

485 posts

Ultimate Geek

#3244632 5-Jun-2024 10:00

Eva888:
Most of the time settlement day means just that and the cash is in the bank on time. However there can be odd occasions when someone decides either to back out of the contract or circumstances change like a death or accident or they go bankrupt like in the case of a developer buying a property and many other scenarios that are rare but can happen.

Although it’s meant to be a sure thing to have a cash offer in hand with a settlement date there are those rare times when it won’t go ahead, so I completely understand your anxiety. There are legal remedies for non settlement and the Courts are tough on those that don't but that takes time and money and a lot depends as you mentioned, on if they have assets to remedy.

The market has slowed down for selling now so buyers are scarcer and you don’t want to become part of a chain of people buying on condition of selling their own homes.

A lot also depends on your personal circumstances so things to consider are, do you have relatives guaranteed and willing to be a back stop if things turn sour. Would your bank consider bridging finance and can you afford to pay this while waiting. Would your lawyer be willing to cover you with trust funds if anything unforeseen happens to a sale.

In the meantime only make offers that are subject to a settlement completed on your own house and get advice on the exact wording to ensure that it’s clear you will not go unconditional unless cash from the sale of your property is in the bank. If you are very nervous or risk averse the best decision is to wait till settlement on your house happens and then shop with cash in hand which also means that you could get a much better deal and can bargain.

If you wait until your house settles you can rent an Air B and B or go to a cheap motel for two months if you don’t have anyone to stay with. It’s winter and rental prices will be very negotiable for long term.

Brilliant answer thank you, ill ask my conveyencor if a subject to settlement being completed is common and a good idea. I am very risk adverse.

_David_

cddt

1557 posts

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#3244637 5-Jun-2024 10:14

In this market, I would recommend selling your house first (unconditionally), then making an unconditional offer (once you have done your due diligence).

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