What happens After Selling A House?

Domain - Oct 3, 2018

Once your property is sold, the settlement period begins.

Although there are differences in each state, the period after selling a house can be divided into three key stages:

  1. Exchange of contracts
    When an offer has been accepted, or an auction has been successful, the buyer and seller sign the contract, and the property is taken off the market. The buyer will then have to pay a deposit, normally 10 per cent of the purchase price, although in some cases this can be negotiated. At an auction, a deposit is usually paid on the spot. Once the deposit is paid, things can progress to the next step in the process.
  2. The cooling-off period
    Buyers and sometimes sellers are typically afforded what’s known as a cooling-off period. This fixed period of generally between two and five working days can be used by the buyer to complete any searches and inspections of the property and allows both parties time to confirm they are happy with the agreed sale price.
    The length of this period, whether it applies to both parties or just the buyer, whether its duration can be negotiated between the parties, and penalties for terminating the agreement during the cooling-off period, are all dependent on the laws of the state or territory where the property is located.
    Once the cooling-off period has ended without objection from either party, the contract is declared “unconditional” (meaning locked-in) and the full settlement process begins.
    Properties sold at auction are normally unconditional and buyers are not entitled to a cooling-off period.
  3. Settlement period
    The settlement period is when both parties complete the property transaction. This is the time when solicitors or conveyancers for both parties do the bulk of their work, ensuring the buyers are purchasing exactly what they have been sold, checking inclusions and exclusions, conditions, zoning, planning permissions, boundaries and so on.
    The standard settlement period is six weeks, although this can vary. If you’re still living in the home, this is when you’ll need to move your possessions into your new home.
    On settlement day, the buyer receives the money owed, the legal transfer of the property from seller to buyer is done, and the buyer is given the keys to the property.
    Once the deal is complete, the agent will invoice the seller the amount due, with fees based on the final sale price. Check that any fees included in the invoice are as agreed in the contract.

Once your property is sold, you can arrange the move to your new home.

Should you buy your next house before selling?

Selling your old home and buying a new one is no mean feat. Both processes require a major commitment of your time, emotions and money. Most people choose to sell their old home first and then use the available equity to purchase a new home. But there are times where buying first may better suit your circumstances.
Selling your home first and buying later

Commonly, people sell their existing home first. This helps to free up their equity and establishes a realistic budget when it comes to finding a new house. Ideally you will time the sale of your old home and purchase of your new house as closely together as possible.
This will help avoid the expense and trouble of having to organise interim accommodation and moving house twice.

There are a number of roadblocks to this ideal scenario:
• You will need to manage both the selling and buying processes at once.
• It may take much longer than you anticipated to find and settle on your new home.
• Real estate values may rise after selling, pricing you out of your desired market.

If there is an interim period between your real estate sale and purchase there are a number of options you can look at:
• Negotiate a longer settlement period on the sale of your home.
• Organise to lease back your sold home from the new owner to give you more time to find a property.
• Move into a rental property.
• Stay with family or move into a hotel and place your goods in storage.

These options will generally save you money in comparison to buying before selling and incurring the costs of two homes and two mortgages.
It is important to take into account your accommodation arrangements when finalising the settlement dates on your home’s sale and new purchase.

You can negotiate to rent your property from the new owner until you've found your new home.

Buying your new home first and selling later

Buying before you sell can be financially tricky but you cannot control when your dream home may come on the market. For some, the convenience of a single relocation is worth the potential costs.

Without the equity from the sale of your existing home, you are likely to require bridging finance to cover the purchase of your new home. Bridging finance can cost more than a standard home loan. Additionally, buying first can mean extra pressure to sell your existing property, leaving you with less control over the sale process.

There are some steps you can take to reduce the burden of juggling two properties:
• Make the sale of your existing home a contingency on the purchase of your new home; but be warned, this may put sellers off.
• Negotiate a longer settlement on the purchase of your new property, giving you more time to sell.
• Rent out your old home until it is sold, but tenancy can make the sale process more complicated.
• Rent out your new home while working on the sale of your existing home, but this requires timing the end of the tenancy with the sale of your existing home.

What is bridging finance and when do I need it?

A bridging loan provides you with the funds to purchase your new home in the event you have not sold your existing home. It’s offered by most lenders, and can be secured by the equity in your existing home, the new property or both.

In the event you obtain a single loan based on the equity in both properties, you will generally have six to 12 months to sell your old home. Make sure you discuss the repercussions of not selling within the specified loan period with your lender.

Throughout the term of the bridging period you will normally only pay the interest owing. After the sale of your property, payments will again address the principal and interest owing on the remaining debt. Or you may choose to take out a new home loan.

An alternative is a new loan on the purchased property. This new loan will not require payments during the bridging period but the interest will accrue and you will still be paying off your existing home loan. Once your old property has sold and the respective home loan paid off, you will need to renegotiate the new property’s home loan terms with your lender.
Taking out bridging finance can add considerably to your debt load, so make sure you seek financial advice before committing to a bridging loan.

If you've bought your new home but haven't sold your old home, you can arrange bridging finance until the property is sold.

A deposit bond is an alternative to a cash transaction and can provide you with the finance to cover the deposit on a new home if your money is tied up in an existing property.
Deposit bonds operate as a guarantee by your lender that you will pay the deposit on the purchase of your new home at the time of settlement rather than at the exchange of contract.

Deposit bonds are considered a convenient financing option as they can be arranged quickly, generally offer a six-month term and a one-off fee, and offer up to 10 per cent of the purchase price of the property.

Do I have to pay tax if I sell my house?

Capital Gains Tax (CGT) is the tax you pay on any profits you make from the increase in value of your assets between the time you buy and the time you sell. Property is just one of the asset types that attracts this form of tax, which is collected by the Federal Government through the Australian Taxation Office (ATO).

In the case of real estate, you are generally required to pay CGT on any property you own that is not your primary residence – that is, where you live most of the time. This includes investment properties, holiday homes and any other type of property you own. You will be pleased to know that your family home is exempt from CGT.

For properties that you have lived in for a time but have also rented out as an investment, you are generally required to pay CGT on the period(s) where you were not the occupant, although there are exceptions.

Capital gains tax is payable when selling a property that isn't your primary residence.

How to calculate capital gains tax

There are three ways that CGT is calculated and they depend on how long you have owned the property. All are charged at your marginal tax rate.
1. If you sell the property before you have owned it for 12 months, you must pay the full rate of CGT on any capital gain you make.
2. If you own it for more than 12 months – even a single day more – you are eligible for a 50 per cent discount in the rate of tax you have to pay. So it definitely makes sense to factor that into your plans.
3. For those who have owned a property since before September 21, 1999, you can increase the cost base for your property by applying indexation, which has the effect of reducing your capital gain for tax purposes.

The ATO has plenty of information to help you calculate your capital gain and what tax you might have to pay, as well as a series of video guides on tax implications for rental property owners.

What’s next?

Once you’ve sold your home, it’s time to find and purchase your new home. Be sure to stay across the latest property news to find out what’s happening in the market, and take a look at suburb profiles to help select the right area to live in.