Part Exchange - What is it and how does it work?
Part Exchange – what is it and how does it work?
Owning your own home is an ambition that many people share, but as prices rise in many areas that ambition seems ever more out of reach. But it's not just first-time buyers who are affected by price rises. If you are already a homeowner, you may be stuck in a house or flat that is too small for you, yet be unable to buy a larger home because of the price rises. The answer for you could be a part exchange scheme.
What is Part Exchange?
The most basic definition of Part Exchange is that it is the trading in of one item for another. When applied to housing, part exchange is trading in a house you already own/have mortgaged against the value of a new home. The builder of the new property buys your existing property from you and the value is taken away from the value of the property you are buying.
How it works
To participate in a part exchange scheme, you need to be a homeowner already and willing to purchase a new build. Part exchange homes are taken in part payment for a new home by the housebuilder or developer. It can be ideal if you are looking for a new build property or are having difficulty securing a buyer for your present home.
But this kind of scheme should, as with any other purchase, be considered with caution, as it is not the answer for everyone and may not offer the best value. You should also examine the conditions carefully, as each housebuilder offers different criteria. For example, when purchasing from Barratt Homes, the value of your home must be a maximum of 70% of the property you wish to buy (Bovis accept up to 75%), and Taylor Wimpey will not accept flats with less than 85 years on the lease. Part exchange can be a tempting prospect when you already have a home to sell, and removes one step from the undoubtedly demanding process of buying and selling. Having already bought a home, you will be well aware of how stressful the experience is - and if you also have a home to sell, you can double that stress! So any way of reducing that stress could be welcome.
You should, however, consider all the pros and cons before committing yourself to such a scheme, and should treat it just as you would any other house deal.
Pros of Part Exchange
- When you part exchange your home you will not have to look for a buyer
- You'll save the costs of instructing an agent
- You have a guaranteed buyer if your home is accepted
- If you need to move quickly it can save time
- It can save you stress
- You may be able to choose the décor and fittings for your new home
- A brand new home can be appealing
- It could be an easy way of upgrading
- You won't need to become part of a chain
Cons of Part Exchange
- You may be offered less than your property could achieve on the open market
- There is no guarantee your property will be accepted for a house part exchange
- New build homes often have smaller plots and room sizes than older homes
- You will have to select from a limited choice
- The developers will only accept homes that they can sell quickly, so if your home has any drawbacks such as a short lease they may not accept you
- You will have to take on a more expensive property
You will probably get more for your existing home if you sell separately Part Exchanging is not for everyone, and before deciding if such a scheme is right for you, you should ensure that you are well informed about the details of the scheme. As each developer varies, you should study the conditions very closely and make sure that you know exactly what you will be dealing with.
You should also not assume that you can automatically get a great deal. The housebuilders are, naturally, out to make a profit, and if they offer you full market value for your old home you will be paying an inflated price for the new one.
Questions you should ask if you're interested in Part Exchange:
- What extras can I get, such as having my stamp duty paid or white goods?
- Can I negotiate on the price of the new property?
- How does the company arrive at a valuation for my home?
- What costs are involved?
- Is the developer likely to be open to deals (if you are buying at a time of year when sales are slow, they could be ready to negotiate)
- Are there any fees if I change my mind after accepting a part-exchange on my property?
- What is the maximum value that the company accepts for a part-exchange property? (this could be an issue in expensive areas) .
- Is it worth my while accepting a lower valuation for my property?
Part Exchange steps
- Visit a development, speak to sales advisors and select the home you wish to purchase
- Reserve your new home and await the valuations of your current property from the house builder
- Agree a selling price for your current home and review the terms of the valuation (ie how long the valuation lasts should your property not sell)
- Accept the formal offer for your property and get ready to move in to your new home
Be aware of where the profit is coming from for the housebuilder. Some housebuilders pledge to offer you 100% of the market value of your home, and instead reap their rewards from inflating the price of the new property.
Treat Part Exchange like any other property transaction. You can negotiate both the Part Exchange offer given for your property and the price of the property you are going to purchase.