Simultaneous settlements: what you need to know

May 30, 2024

Simultaneous settlements - when someone sells their property to buy another around the same time - can be highly stressful, even when planned carefully.

Here's how you and your finances can come through the buying and selling fray in one piece.

Simultaneous settlements: what to consider

In an ideal world, the settlements of both the sale and purchase of the relevant homes would occur at the same time.

This negates the need for a "double move" including organising expensive temporary accommodation and furniture storage.

(NB: buyer-sellers moving into an unknown area may appreciate this double move as it will give them to investigate the location further, including its properties.)

While simultaneous settlements can be arranged, it's not always that easy to do so, especially as some factors can be out of simultaneous settlers' control.

Legalities and lenders may not fall into line easily - and that's just for a start.

The overall real estate market needs to also be considered as well as existing home loans and incomes.

Selling existing home first: what to consider

Best for: low-equity vendors in buyer's market who prefer low risks

    • Will know exactly how much you can afford for new home
    • Don't need to pay two mortgages simultaneously

    But expect ....

    • Time pressure to purchase another home swiftly
    • Potential, expensive "double move" including temporary accommodation and furniture storage

    Also consider ...

    • Possibility of existing home not selling quickly in the current market
    • Is equity low or high? 
      (NB: if you still owe 80% or more on existing home's value, you won't qualify for bridging loan)

    Buying another home first: what to consider

    Best for: high-equity vendors in seller's market, able to cope with higher risks

    • Can make purchase decision more carefully, without panicking 
    • No potential "double move" 

    But expect ...

    • Need to cope with "double mortgage" (for new purchase and current home)

    Also consider ...

    • Potential long wait to sell current home may mean lower price and rushed sale
    • Potential overestimate of current home value when buying may mean overstretched financial position
    • Is my equity low or high?
      (NB: aim for 60% less than current home's value)
    Simultaneous settlements
    Simultaneous settlements, selling and buying property at the same time, can be a challenging process.

    Juggling the financial transition

    Whether you choose to buy or sell first, simultaneous settlers understandably want to save as much money, time and stress as possible.

    However, both settlements are reliant on each other to do so, as are the separate buyer and vendor - and even a few days' difference between the two settlements can make a major difference when it comes to penalty fees and other costs.

    You may even lose your deposit.

    Luckily, there are a few ways to help this process run smoothly.

    Longer settlement periods

    This is probably the best plan for simultaneous settlers who sell before buying.

    While settlement periods in Australia are usually 30 to 90 days, simultaneous settler vendors can stretch this period out to up to six months, if necessary.

    For vendors who find a new home sooner than expected, this contract clause also allows for a shorter settlement than initially agreed to - as long as the buyer is given plenty of notice.

    The risk with such clauses however is that the vendor may not find a new home even in the longer settlement period and thus, they may lose their deposit.

    Lease-back arrangement

    This is another possibility for sell-before-buying simultaneous settlers, especially those purchasing an investment property or one in which the buyers have already moved out.

    Such settlers can negotiate with the vendor to move into, and stay in, the empty house after contracts have been exchanged but before settlement.

    The new buyers will pay rent to the vendor in this period and the final purchase price based on these monies.

    Special conditions

    A sunset clause can greatly assist simultaneous settlers who buy before selling.

    This clause enables buyers to undertake a conditional contract for a property but only purchase it if their existing property sells within an agreed time.

    However, the vendor can still market their property within this period and even accept another offer.

    Thus, sunset clause buyers will need to ensure their offer is more attractive ie higher than the average one.

    They should also be aware that some vendors may prefer a contract without such clauses.

    Bridging loans 

    These loans apply to buy-before-selling simultaneous settlers.

    As the name suggests, thse loans financially bridge the gap between buying and selling a property.

    As Mortgage Choice explains, "when you take out a bridging loan, the lender usually takes over the mortgage on your existing property as well as financing the purchase of the new property".

    "The total amount borrowed is called the Peak Debt, and includes the balance of the loan on your existing home, the contract purchase price of the new home and any purchase costs such as stamp duty, legal fees and lenders fees".

    Bridging loans are also short term - about six to 12 months is the average - and interest-only.

    While bridging loans enable buyers to sell their former home in their own time - to an extent - they also mean buyers will need to pay much higher interest until this former home sells.

    NB: they are only available to buyers with a high amount of equity (ie 60% or less of the existing property's value).

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