Research and patience are vital when it's time to get a bigger and better home, writes John Kavanagh.
Mortgage broker Stephanie Cook says the most complicated transaction she has to deal with regularly is one where the client is selling a home and upgrading to a bigger one. Clients have to decide whether to sell or buy first, consider keeping the first home as an investment property and sort out their finances so they can move from their old mortgage to a new one without incurring extra cost.
"Buying the first home is relatively straightforward," says Cook, who owns a Mortgage Choice franchise in Sydney's Lane Cove. "People get a shock when they realise how complicated things can get when they are selling to trade up."
Other issues that can complicate the sale include setting the right price, deciding whether to put the house to auction, and sorting out the best agreement with a real-estate agent.
Australia's residential property market has made modest gains in the past year, after a two-year decline that saw values fall by an average of about 7 per cent. Industry analyst BIS Shrapnel says the major capital-city market will continue to grow during the next three years.
The growth trend has encouraged a modest pick-up in home-loan sales, along with residential property investment activity and turnover of family homes. However, selling a home can be a tricky business and industry experts warn sellers to do their homework first and have a plan.
Cook says a typical situation is where a couple has owned a house or unit for four or five years and has outgrown it.
She says few people consider keeping the property as a rental investment. "We help them analyse whether they have enough equity and cash flow to service two loans." She says the biggest mistake people make is starting with a plan to sell their property first, so they know what they can afford to buy, but then seeing something they like and buying it.
"Emotion gets in the way and their plan goes out the window," Cook says. "That can have an impact on the price they get on their sale, if they are forced to sell more quickly than they otherwise would, and on their choice of finance options," Cook says.
"This is less of a problem when the seller is downsizing. Moving from a higher-value property to one of lower value means there should not be much of an issue with debt."
The head of lending at Centric Wealth, Sheyne Walsh, agrees upgrading is the property transaction that can cause problems. Walsh says: "In January, a client told me he was buying a larger property for his young family. He had a three-month settlement and was under pressure to sell his current home. He ended up taking a bath on his sale and financing his new property with a high loan-to-valuation [LVR] ratio.
"Banks don't like lending on LVRs above 80 per cent when the amount of the loan is more than $1 million. In the end, we had to lean on the credit department to get the loan approved and the client ended up with some additional conditions. The portion above 80 per cent has to be repaid within five years. The client ... didn't have a plan."
Walsh says self-employed people who were able to get low-documentation loans at competitive rates before the financial crisis may find it harder to get finance now. "Lenders want more detailed conformation of income, and interest rates tend to be higher," he says.
RP Data research director Tim Lawless warns that properties can become stale if they stay on the market too long. This usually happens because the asking price is too high or the marketing strategy is wrong.
On the question of price, Lawless says there is plenty of data available that will gives sellers an understanding of market conditions in their suburb.
Lawless says: "They need to know what has been going on in their area - get an understanding of what has happened to similar properties. A property report from myrpdata.com or local agents will give them that information. Those reports will also tell them the average time to sell."
When it comes to marketing, Lawless says a lot of sellers think the only place to advertise a property is online. "You need print plus online," he says.
And when it comes to dealing with an agent, the Real Estate Institute of Australia (REIA) says every agent should provide a seller with a written quote, setting out a predicted selling price and the agent's fee.
The REIA's consumer fact sheet says: "Remember to ask for exactly what the commission buys you. Some agents will offer newspaper advertising only, while others may organise open-house inspections, letterbox drops and other effective forms of promotion. For this reason, the agent with the lowest commission fee is not necessarily the wisest option."
Former real estate agent Neil Jenman says sellers should avoid signing long agency agreements; he recommends no more than seven weeks. "The longer the agent has your home, the more chance that you will be pressured to lower your price," he says.
Lawless says the decision to go to auction or sell by private treaty comes down to the house. "If the house is pretty standard for the area, in terms of land area, number of rooms and condition, then it will be easy for buyers to compare it to other sales.
"Private treaty works well for that type of house and is a cheaper way to sell. But if the house has characteristics such as a view, proximity to water, a large block or historical value, comparisons are not easy ... Put it to auction and leave it to the market."
Price trends in Australia's residential property values made modest gains during the 2012-13 financial year, and industry experts expect that trend to continue during the next three years.
According to RP Data, there was a 3.8 per cent increase in the average dwelling price across the eight state and territory capitals in the year to June. Sydney values rose 5.6 per cent and Melbourne values rose 3.4 per cent.
Property industry analyst BIS Shrapnel is forecasting annual growth of 5.9 per cent for Sydney house prices over the next three years. It expects Melbourne to be weaker, with less than 2 per cent a year over the next three years.
In a report issued this month, BIS says the outlook is uneven due to housing shortages in some states and excess stock in others. The strongest conditions are expected to be in NSW, Western Australia, Queensland and the Northern Territory.
"In contrast, Victoria, South Australia, Tasmania and the Australian Capital Territory have all experienced strong peaks in construction in recent years that well exceed demand for new dwellings," the report says.
BIS Shrapnel senior manager Angie Zigomanis says the general improvement in residential markets since the middle of 2012 has been pushed along by low interest rates.
However, a weakening economy suggests further market growth will be slow.
Like most of us, Brian Gibson has made some poor financial decisions. He remembers buying a car on impulse and realising afterwards that he could have got a much better deal if he had taken his time and shopped around.
But when Gibson put his home in Berowra Heights, north of Sydney, on the market earlier this year he was determined to do everything he could to make sure the sale enjoyed the best possible outcome.
Gibson, who works as the digital communications manager at Football Federation Australia, spoke to seven real estate agents before he assigned the listing. He studied sales data in his area, by using RP Data and agents' websites, before fixing on the price he wanted. And he tracked his costs closely through the sales process.
He says the approaches taken by different agents varied quite a bit. "Some never came to see me, preferring to deal with me on the phone or via email, and they still wanted the listing." In the end he selected an agent he felt comfortable with and who appeared to be passionate about selling the house. The agent did not quote him the highest price.
"The agent that quoted me the highest price was a bit over the top. It was a bit much," Gibson says.
A couple of agents urged him to take the property to auction but his research told him that was not the best option for his area.
His agent sent him regular feedback on traffic to the website listing and responses to local newspaper ads.
Gibson sold the house for a little less than his asking price but he was satisfied that he made a good return. He plans to rent and live debt-free for the next three or four years before getting back into the market.
"My advice to anyone selling is to take your time and be thorough," he says.
Putting in the research pays in the end
Tips for getting it right
Plan ahead and stick to the plan. Don't get caught buying before you sell
Buying a bigger, more expensive house is harder than downsizing
Work out a marketing strategy and a realistic asking price
Get hold of all the latest industry prices and results
Interview several agents before choosing one