B26 - Selling and Buying a Cheaper Home
When thinking about selling your current home and buying a cheaper one, you must first assess the value of your home and the 'equity' available to you from that property.
Equity is the money you have left after any mortgage on your property has been deducted from the sale price.
You will need to include the expenses involved in selling a house (such as legal, bank, advertising and real estate fees, moving costs and final utility bills)
when you are working out how much money your house sale will give you.
Selling your current home and buying a cheaper one could involve:
- buying a smaller dwelling and/or section in the same area
- switching to a cheaper property type in the same area, for example, moving from a freestanding home to an apartment or unit
- moving to an area with cheaper housing
Valuing your home
The most readily available source for estimating the value of your home is your property's capital value (CV). The CV is an estimate of market value at the time of assessment.
Generally your property's CV is assessed every three years.
You will find your property's current CV on your most recent rates bill. You can request a copy of your rates bill from the council. Many councils also allow you to look up
rates assessments online.
Current market value can be different from the CV, particularly if the last CV assessment was done some time ago or if the housing market has experienced a rapid change in house
prices since that assessment.
For a more accurate estimate of what your home would be likely to sell for in today's market, you can use Quotable Value's (QV's) E-valuer. This is an automated value estimate
based on recent sales in your neighbourhood. You need to pay for this information.
You will need a registered valuer to get the most accurate estimate of the value of your home.
Buying a cheaper home
To get an idea of where you can find cheaper homes, see the QV website for recent residential sales information for all property types by suburb throughout New Zealand.
You can also get an idea of the going prices by researching advertised asking prices. However, asking prices can be hard to discover when the housing market is buoyant as many
sellers elect to sell by auction.
Real estate websites such as trademe and realestate.co.nz can help give you an idea of the different types of properties currently on the market in a given neighbourhood.
- If you have a relatively high amount of equity in your home, you will have a wider choice of places to buy.
- You may be able to invest any excess funds from your house sale and use them as supplementary income or as a safety net for unforeseen future expenses.
- A smaller property often comes with less maintenance requirements and potentially lower rates bills and power costs.
- A smaller property may be too small for you. Think about whether a small property will allow you to do the activities you want to do in your home, such as have visitors to
stay, and do hobbies.
- Moving to a different neighbourhood may reduce your contact with friends, neighbours and family who remain in your old neighbourhood.
- Cheaper homes are not always easy to find.
- There are some useful guides and checklists for buying and selling a home, available from the Home Owners and Buyers Association of New Zealand (HOBANZ), Citizens Advice
Bureau (CAB) and Consumer.
- If you are using a real estate agent, make sure they are fully licensed.
- You should always get a pre-purchase inspection report on the home you are thinking of buying. This is an independent building report on the condition of the house and any
defects or issues. An independent building inspector or building surveyor produces the report.
- You should always get a property title search to ensure there are no problems with the title (your solicitor will do this) and a Land Information Memorandum (LIM) report from
your local council, which provides information about the site and the building.
- Use the Good Homes for Good Lives checklists to assess the resilience of the building design, materials and site (see:
- Increasingly, interested home buyers are having prospective properties (especially ex-rentals) tested for contamination from the manufacture of the drug methamphetamine (also
known as meth or P).
What do I need in order to take this option?
You need the funds and the right home to be available. Mortgage-free or small-mortgage homeowners whose home has a high value have more flexibility to find a less expensive home
that fits their needs well. However, home-owners who have high mortgages or low-value homes will have fewer choices.
Could this option limit my future choices?
Maybe, it depends on the equity you have in your current home and the potential equity generated in your new home.
For more information