by Carly Susic, Melbourne Property Advocate
Thinking about upsizing your home? It’s an exciting prospect, but with a bigger financial investment comes bigger risk. It’s important not to get carried away with what you can purchase and be strategic and intentional with your next property move.
Whether you’ve got a great promotion, inherited some money or simply in a stronger financial position for other reasons, you’re ready to make the move. Many upsizers are tired of struggling in a smaller property and have a growing family. You need a bigger yard, more rooms or more space for children to run around and enjoy. Or perhaps you want to upscale to a better suburb with more amenities, a better location or closer to family. Perhaps you want to be near a prestigious school zone, or want more space for working from home.
Whatever the reason, you’re in a good position.
Now is a great time to upsize
In the current slow market, prices are down, which gives you a strong opportunity to capitalise. Let’s say your house is worth $1.5 million and with the falls in house prices, it’s now worth 5% less, about $1.425million. That is of course disappointing, you’ve lost (on paper) $75,000.
But if you want to purchase a $2 million property, it is also down 5%, to about $1.9 million. The discrepancy is $25,000 and you also have a two million dollar property that will hopefully increase in value in years down the track, leaving you with a strong asset to sell in 10 years or more.
And that’s just an estimate of 5% price decrease. Some areas have held steadier while others have seen higher drops. The average, as reported in The Age, ranges from 6% in the inner east of Melbourne, to 1.3% in Melbourne’s north west.
There’s less competition in a slower market
Aside from the potential gains, you are less likely to have strong competition so you’re at an advantage. This means you’re in a strong position to negotiate. If you’re the only genuinely interested bidder, or you are the only buyer that can act unconditionally, you can use this strategically. However there’s a risk of overpaying here too. Without competition, you don’t know where you stand against the rest of the market. So without research you can easily overpay for a property without realising it.
The golden rule: always sell before you buy when upsizing your home
So many people get in hot water by purchasing a home first. It’s risky at the best of times, but even more so in a quiet market. I have already heard many stories of people in compromised positions in this current climate. If your home fails to sell, or doesn’t sell for the price you need, you’re in hot water. Bridging finance can be extremely expensive. And there’s no guarantee your previous house will sell, meaning you can be stuck in expensive limbo for months. This can be financially disastrous, or at the least very prohibitive to your cash flow.
If you sell first, you enjoy a few advantages:
- you don’t risk the problem of your home failing to sell
- you know your exact financial position and what you can afford to purchase
- you may be pleasantly surprised at the sale price and have more to spend than you expected
- you are in a position to negotiate strategically without having to add conditions to your offer
Admittedly you take on the risk of selling first and potentially having to move out before you’ve purchased.
But compare your risks:
- risk one, when you buy first: a financially crippling situation and expensive bridging finance costs that drain your income drastically
- risk two, when you sell first: having to live at home with family or friends or in an rental or AirBNB for a few months
The inconvenience of moving twice is far better than the potentially severe financial consequences of buying before you sell.
Avoid getting carried away with your buying potential
I see many upsizers make this classic mistake. It’s exciting to go house hunting with a higher budget, and you can get swept away with the possibilities and overlook your due diligence.
I once advised a couple who were upsizing to accommodate their growing family, they went “window” shopping before they had sold. They found a house they were absolutely in love with, but I was not convinced. They hadn’t sold or even had valuations done on their current home, and the home they liked was also compromised. The floorplan was not suitable, and it was overpriced. I advised them not to purchase. That house later went to Auction and failed to sell (other buyers could see the same problems I noticed). The couple were relieved they hadn’t purchased and went on to sell first and purchase something at a far better price and with far greater growth potential in future.
Always consider the long-term asset
If you’re excited about a larger home, or a better suburb, or the amazing styling you can forget to really check over the house. It’s harder to spot an overpriced home in a slower market, because the other buyers aren’t providing checks and balances. Your emotions can run away with you and you end up purchasing a home that’s hard to sell later.
Really make a detailed house buying checklist about what you want and stick to it. If there are no competitors also trying to buy the home, this can indicate you’ll have trouble when you sell down the track.
I want you to purchase a house you love, that meets all your needs and that also gives you a valuable asset for the future. Imagine you’re selling in 10,15 or 20 years time. Do you want an auction packed with eager bidders, all competing to purchase and soaring above your reserve? That’s what purchasing a quality property with good owner occupier appeal, scarcity and rarity does.
Don’t buy from slim pickings
In a slower market you have more purchasing power, but there’s also fewer properties on the market. Vendors are cautious and few are willing to sell in these market conditions. So you don’t want to purchase out of impatience or frustration, this is where costly mistakes can happen. You’re better off waiting for the right home to come along than just choosing from the few properties that may be on the market at the moment. The market is going to be slow to recover, so don’t worry about losing potential gains as an upsizer. Being patient and strategic is your best bet right now.
Be strategic about off market properties
In a slowing market, we see more off market sales, as vendors are nervous about auctions with no bidders that only get passed in on vendor bids. And they are also wanting to avoid the costly marketing fees in case they don’t get what they want for it. It’s exciting to be an off-market buyer, being the only one in the know about a property on the market. However, you can be vulnerable to overpaying for off-market properties. Without an auction to give you an indication of what the market thinks the home is worth, you are shooting in the dark. For more on this, read our guide to off market properties.
Consider a buyers advocate to help you
Of course I’m going to recommend this, but it really is a wise move. Upsizing your home is likely to be one of the biggest financial decisions you’ll make in your lifetime. So it really is worth investing in expert help to get it right. We can help find you the most suitable homes and give you access to properties not on the market through our network with agents across Melbourne. Agents want to sell homes quickly, so they’re not impartial when giving you advice.
But a buyer’s advocate will warn you when the home is overpriced. We help you make a strategic investment that supports your current and future lifestyle. And we help you secure a valuable asset that appreciates in value in years to come. And we’re very strong negotiators, so you can be confident we will strategically negotiate the best price. Because we’re impartial and unbiased third parties, we can help you from making emotional decisions and stop you from purchasing an overpriced property. Now is the time that a buyer’s advocate can add real value as we help with navigating and negotiating in ever-changing markets.
In summary: upsizing your house
- In a market downturn, you have great potential to benefit
- Always sell first, buy later
- Don’t get caught up in what you can purchase—be strategic
- Always consider the long term viability and resale appeal of your asset
- Don’t buy from a limited selection if they are not right
- Be strategic and cautious with off-market properties
- Consider a buyers advocate to help you make the best possible financial and lifestyle decision
