It is common for homeowners to want to upgrade their home. 

If you have been paying down your mortgage debt for several years and the value of your home has increased, you may want to buy a more expensive property in a better location.

If your family has increased with the addition of children, not only do you want to upgrade, but you need to upgrade to a larger home.

As some government charges for property purchases increase every financial year, this is a good time to look at the costs of selling and buying – from 1st of July 2018.

We will provide an update on the additional costs payable by foreign persons in a separate article.

Upgrading your home: What’s your budget?

This is one of the most important questions to be answered before you start the search for your next home:

1. Value of current home?

  • You need to determine what your existing property is worth.  You’ll need to engage a Valuer or a Real Estate Agent to determine what a realistic selling price might be in the current market.

2. How much can I borrow?

  • You need to determine how much money a Bank might be prepared to lend you to buy a new home – after selling your existing home.  The Bank is not likely to confirm an exact amount until you sell your existing property.

3. How much will I borrow?

  • Once you know how much you can borrow, you need to determine how much you want to borrow.  It’s usually prudent to never borrow to the maximum amount that your Bank is prepared to loan you, as you want to factor in a substantial amount for all the contingencies of life!

4. What will this cost?

  • Now that you are starting to get a little more clarity around what you might want to spend on your next property, you need to determine what costs will be involved with the sale and the purchase of these properties.

Below are some approximate figures for a typical scenario where someone is considering selling their current home for $500,000, and buying a new home for $750,000. 

This example is for your home (rather than an investment property or holiday home) where no Capital Gains Tax is payable on the sale, and the lower concessional transfer duty is paid on the purchase. 

This example only applies to Australian citizens or permanent residents, and New Zealand citizens residing in Australia.

Selling at $500,000

Apart from the Release of Mortgage fee (which assumes you have an existing loan), all of these costs are negotiable:

Marketing $1,500
Commission $13,750
Legals $1,000
Release of Mortgage $187
Contingency amount $1,000
Total Expenses $17,437
$$ left $482,563

The amount left from a $500,000 sale is about $482,500 – after deducting selling costs of about $17,500.

Buying at $750,000

Building / Body Corp Reports $500
Transfer Duty $19,600
Registration Fee – Transfer $2,182
Registration Fee – Mortgage $187
Lawyer fees $1,500
Searches $500
Contingency amount $1,000
Total Expenses $25,469

The amount required to purchase a $750,000 home is about $775,500 – after adding purchase costs of about $25,500.

These tables show that when preparing your budget to sell a $500,000 property to buy a $750,000 property, you will need at least $293,000 – an extra $43,000 above the higher purchase price of the new property.

What if you only use the sale proceeds?

What is very interesting is a scenario where you want to move, or you need to move, but you either don’t have any cash to spend on the new property, or you simply choose not to spend any cash & just use the sale proceeds.

This is common for more established people who are looking to downsize – and want to preserve all of their cash for other ventures.

Using the above example where you have sold a $500,000 property and you have $482,500 to spend:

Question:  How much can you afford to spend on the new property?

Answer:  $470,000

Here’s a typical breakdown:

Building / Body Corp Reports $500
Transfer Duty $7,700
Registration Fee – Transfer $1,202
Registration Fee – Mortgage $187
Lawyer fees $1,500
Searches $500
Contingency amount $900
Total Expenses $12,489

If you have $482,500 available to buy a home to live in (which is not the first home that you have ever purchased), you should be able to afford a property up to $470,000.

It’s a little sobering that where you sell a $500,000 home, you can only afford to replace it with a $470,000 property.

A separate discussion is needed for an investment property, where the position is significantly worse as you have higher transfer duty costs on the purchase, and Capital Gains Tax may be payable on the sale.

Final Comment

The costs of selling and buying real estate are considerable.  These examples highlight the importance of doing your research to maximise the chances of buying the right property for you.  It is an expensive process to sell a property that you no longer want, to enable you to buy an alternate property.


Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

Copyright © 2018 Wockner Lawyers. All Rights Reserved. Contact Wockner Lawyers – [email protected]. This article may not be used without the prior written consent from the author. See below for more details…

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