1st Street Newsletter JULY 2007

Contents

Buy Before You Sell?
Private Treaty Or Auction?

Jeremy Fisher
Director

518b Old South Head Rd
Rose Bay NSW 2029

Tel:	1300 880 109
Fax:	02 9371 1990
Mob:	0411 33 9998

E-mail:	Click Here
Website:	Click Here

Welcome to 1st Street Home Loans. We are an Australian-owned mortgage advisory company with a difference. Due to our strong relationships with the banks, industry leading technology, honest approach and only the highest level of service, we were recently awarded as the number 1 independant mortgage broker in Australia.

With an increasing number of people today turning to mortgage brokers for professional and unbiased service, 1st Street Home Loans is fast becoming their broker of choice. We offer a free and impartial service that provides access to over 30 residential and commercial lenders and more than 500 loan products from across Australia.

The Mortgage and Finance Association of Australia (MFAA) is the peak body for the Australian mortgage industry. Members include banks, mortgage managers, credit unions, mortgage brokers, wholesale funding institutions, real estate agents, valuers, solicitors and conveyancers.

All MFAA members belong to an independent dispute resolution scheme such as the Credit Ombudsman Service Limited.

Loan writing members are also required to become Accredited Mortgage Consultants (AMC). An AMC is covered by professional indemnity insurance, has passed probity checks, and has met education and experience requirements set out by the MFAA.

Hello,

Welcome to 1st Street's monthly newsletter. If you require any assistance in obtaining the right loan for you, or if you have any questions in regards to an existing loan, please do not hesitate to contact me personally on 1300 88 01 09 or 0411 33 9998.

Kind regards,

Jeremy Fisher

Buy Before You Sell?

Young Couple in Kitchen Most people want to sell their home before buying the next.

However this safe route may not be the best option, particularly if your "dream home" only comes onto the market occasionally.

Whilst conventional wisdom would say “ignore the dream home” and sell first that might not be the best option. For example if you were looking for a low-maintenance property in the inner suburbs, these are hotly contested and there are rarely enough to meet demand.

This means it could take you six or 12 months to find the right home. If you’ve sold your home in the meantime, then you’d have to go to the trouble and expense of renting.

Also you would have lost your foothold in the market whilst property values continue to increase. This will make it harder to afford the right home when you do eventually find it.

Bridging Finance

In order to buy before you sell, then you’ll need to arrange finance covering the two properties. This is known as bridging finance.

The big challenge is meeting the repayments for two properties in the short term that you own them both.

The good news is that bridging finance has become more flexible than in the past. Financial institutions are recognising that helping borrowers through this period means they are more likely to keep their custom in the future.

As a result the interest rates are more competitive and the loans can be set as interest-only, reducing the monthly repayment.

Indeed, some lenders will even allow you to capitalise the interest on the new loan and pay it in the end of the set period, so your monthly repayments do not increase even though you have two loans. Of course, this means that your loan is increased by the amount of interest that you delayed paying.

But Is It A Good Idea?

But is buying a new home before selling your old home a good idea?

The big risk is that you can’t sell your old home. If you can’t sell it fairly quickly the repayments can be crippling or, if you’ve deferred your interest, the increasing loan debt can mount up. Also, most bridging finance is arranged for a fixed term.

Taken to its extreme, this could leave you having to make some expensive decisions such as dropping the price on your old home just to get it sold. This would then mean that you end up with a bigger mortgage on your new home because you have less equity to put into it – assuming your lender would lend you the increased amount! If they wouldn’t, then you would have little option other than to sell your new home as well.

However, this is taking a very pessimistic view. The smart approach is to lessen the risks by doing your homework.

Be Realistic

“Bridging finance is not as expensive as it used to be.”Before you start looking for a new home, get an opinion on both the price you can expect for your property and also how quickly is it likely to sell.

Do this by approaching three reputable agents in your area and ask them for their market valuation.

They should also be able to supply data for other recent sales in your area, plus an overview of any factors likely to affect sales in the near future.

You could also consider hiring a valuer to give you an assessment. Although this will cost you a few hundred dollars, it will give you an independent valuation. You can also purchase reports that give you historical sales price data for your area.

As well as being realistic you also need to be flexible. Even if an offer is disappointing you need to look at the real costs of not accepting it:

how much does it cost you each week that you have the loan on your old home?
is the market buoyant or will another offer be a long way away?
How long has the property been on the market? Too long, and buyers will start to wonder what’s wrong with it.

Extended Settlements

Another approach can be to seek an extended settlement on the home you’re buying, giving you more time to sell your home without the need for bridging finance. You may be able to negotiate a settlement period of four months or even longer.

Whilst this doesn’t guarantee that you’ll sell your old home, it does give you more time to achieve the sale without the costs of bridging finance.

You should also consider the timing of your sale. Is it a good month to be selling? For example if you're selling a family home, then July isn't a good time because with the school holidays many families could be out of town.

Conclusion

There are circumstances where buying a new home before selling your existing one makes sense. Although not without risks, by taking a sensible approach and doing your homework these risks can be reduced.

And remember that there are plenty of options for bridging finance.

Private Treaty Or Auction?

For Sale When selling your home one of the biggest decisions is whether to sell it by private treaty or auction.

There are several factors to consider, so being clear about your priorities is vital.

Some of the key questions to consider include:

Do you want to sell your home within a set timeframe?
At what price are you prepared to sell?
How much work do you expect the agent to do?

The answers to these questions will help you to decide which type of agency agreement to enter. Although the main decision can be private treaty or auction, there are several variants of private treaty to consider.

What Is Private Treaty?

‘Sale by Private Treaty’ means that you set a price at which your property is to be marketed to the public. It is essentially the sale of property by any method other than auction.

Many sellers opt for private treaty because they feel they are more in control of the sale. If they do not like an offer because they feel it is not enough, then they will not feel forced into selling in the way that they can when faced with the pressure and expense of an auction.

Also, there may be a better chance of achieving a higher price through negotiation with interested parties who have made a low offer.

Exclusive Agreement

This is where a seller contracts with one agency to sell their property. It is normally for a set time period. This type of agreement means that an agent is more inclined to work harder for your sale, as they are not “at risk” of having another agent make the sale. It also means that the seller can hold the agent accountable, and if no sale is achieved in the set time period, then the seller can pursue other options.

A variant of this is Sole Listing. Again it is an exclusive agency agreement; however it also allows the seller to find a buyer privately, in which case no commission is payable to the agent.

Open Agency Agreement

This is where a seller lists their property with a number of agents. The successful agent receives the commission, whilst the others receive nothing.

"An exclusive agreement ensures the agent works hard for the sale."This can seem an attractive arrangement, as it means that several agents are trying to sell the property. In reality, however, they are not going to put in the same amount of effort as an exclusive agent.

Also, who does the seller hold accountable when the sale is not made?

It may be that an agent under this arrangement may even be tempted to push the seller into accepting a low price in order to beat the other agents, make a quick sale and get the commission.

A variant of this is Multiple Listing. This is where a group of agents have agreed to combine their listings so that each agent receives and promotes the property. Here the seller is still entering an exclusive agreement with one agent – but the agent shares some of the commission with other agents in the group, so may not put in as much effort as when they will retain all of the commission.

Auction

Selling by auction is another form of an exclusive agency agreement. An auction is where prospective purchasers will bid against one another at a date and time suitable to the seller. The auction can be held on site at the property, or off-site in a hall or function room setting.

The seller sets a reserve price which is the minimum they will accept, and once bidding has passed that level they know that they have a sale as it will be unconditional, and a deposit is paid on the day.

The great benefit of an auction is that there is a definite period in which the house should be sold, or at least where the seller is negotiating with the highest bidder if the reserve price was not met.

There are, however, some potential drawbacks with auctions:

In many areas it is not always a favoured method of selling, and so may not be well-attended. Even in areas where auctions are more common, many buyers do not like this method of selling and may avoid it where possible.
If the reserve price is not met and the property is “passed in”, the costs of the auction are still payable – this can add extra pressure to accepting a price lower than the reserve.
A fixed date and time may exclude potential buyers who are not available to attend the auction.

Conclusion

Most decisions regarding the marketing of a property can and should be determined by a look at the state of the market, the type of property, and the seller’s own needs.

These issues can be best determined in discussion with the chosen agent.

DISCLAIMER: This newsletter is provided for general information only. Please do not rely on this newsletter as a substitute for specific legal or financial advice. Before making any decisions you should consider your specific objectives, financial situation and needs. You can unsubscribe by sending us a reply email with "Unsubscribe from e-Newsletter" in the subject line.