Simultaneous Settlement: Navigating Buying & Selling
Buying a new property while selling your current one is a delicate balancing act that can be both challenging and costly. Timing is crucial—do you sell your property before purchasing a new one, or do you buy first and then sell? One strategy that can help resolve this dilemma is a simultaneous settlement. Let’s explore what simultaneous settlement is, the benefits and drawbacks, and how it could be the solution you’re looking for.
What is Simultaneous Settlement?
Settlement is the final stage in the transfer of property ownership, where the buyer pays the balance of the sale price, and in return, receives the keys to the new property. This process typically takes place weeks or even months after contracts have been exchanged. Simultaneous settlement, as the name suggests, is when the settlement of the property you’re buying and the one you’re selling happens at the same time.
Simultaneous Settlement vs. Buying or Selling First
Buying First
When you buy a new property before selling your current one, you might end up owning two properties for a short period. This could mean having to manage two mortgages simultaneously, which can be financially burdensome. The pressure to sell your existing property quickly might also lead to accepting a lower price just to ease the financial strain.
Selling First
On the other hand, selling your existing home before buying a new one might leave you without a place to live temporarily. You might need to rent a place or stay with friends or family, which can be inconvenient. Some homeowners try to negotiate a "lease-back" agreement, where they rent their old home from the new owner for a period, but this might require offering a lower sale price as an incentive.
Simultaneous Settlement
Simultaneous settlement aims to eliminate these timing issues. If everything goes smoothly, you’ll finalize the sale of your old property and settle on your new one on the same day. The proceeds from the sale of your old home can then be used to pay off your existing mortgage, with any surplus going towards the new mortgage.
The Timeline for Simultaneous Settlement
Here’s a step-by-step guide to how simultaneous settlement works:
Decide Whether to Buy or Sell First: Depending on your financial situation and the property market, decide whether to list your property for sale or purchase a new one first.
Engage a Solicitor: Hire a solicitor to handle the settlement process using an Electronic Lodgement Network Operator (ELNO).
Negotiate Extended Settlement Periods: Whether you’re buying first or selling first, try to arrange for an extended settlement period to give you more time to manage the other side of the transaction.
Discharge the Mortgage on Your Current Home: Ensure that the mortgage on your existing property is discharged as part of the settlement process.
Establish a New Mortgage: If required, set up a new mortgage for the property you’re purchasing.
Register Transfers and New Mortgage: Work with your solicitor to register the transfer of title and any new mortgage with the relevant authorities, such as NSW Land Registry Services.
Move into Your New Home: Ideally, you’ll move out of your old home and into your new one on the same day, making the transition seamless.
Advantages of Simultaneous Settlement
Avoid Bridging Loans: You won’t need to take out a bridging loan, which often comes with higher interest rates and a short repayment period.
No Need for Temporary Accommodation: You can move straight into your new home without the hassle of finding temporary housing.
Same-Day Move: Coordinating your move to happen on the same day reduces costs associated with storage and transportation of your belongings.
Disadvantages of Simultaneous Settlement
Flexibility Required: You may need to negotiate extended settlement periods, which can be challenging.
Complex Process: The simultaneous settlement involves precise timing and coordination among multiple parties, including buyers, sellers, lenders, and solicitors.
Potential Concessions: You might have to accept a lower sale price for your current property or pay a bit more for the new one to ensure both transactions align.
Interdependent Settlements: If something goes wrong with one settlement, it could delay or derail the entire process, leading to penalties or even the loss of your deposit.
What Happens on Settlement Day?
On the day of settlement, your solicitor will:
Adjust transfer prices for any advance or arrears payments, such as council rates.
Discharge the mortgage on your existing property and ensure any previous mortgage on your new property is cleared.
Check the sales contract for any critical clauses.
Register the transfer of ownership and any new mortgage with the appropriate land registry.
Bridging Loans: An Alternative to Simultaneous Settlement
If a simultaneous settlement isn’t feasible, a bridging loan might be an option. This type of loan covers the gap between buying your new property and selling your old one. However, bridging loans usually come with higher interest rates and stricter terms, so they should be considered carefully.
Conclusion: Is Simultaneous Settlement Right for You?
Simultaneous settlement can simplify the transition from your old home to your new one, but it’s not without its complexities. It’s crucial to weigh the pros and cons and seek professional advice to ensure this approach aligns with your financial situation and property goals.
If you or someone you know is considering a simultaneous settlement, feel free to contact us at My Finance Consultants. We’re here to guide you through the process and help you make informed decisions.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.