Much as you can part exchange your second-hand car when buying a new one, this is now possible when buying a new home with many developers allowing a prospective buyer to trade in their existing house in part exchange. So popular is the scheme that some leading developers sell the majority of their property in this way. Part exchange is now a big business in its own right.
This type of transaction can have significant advantages for both parties. The new homes market was often cyclic – very busy or very quiet. The cycles reflected the second-hand market but with greater variations. If your home is not sold at least you can still live there but for a builder rows of completed but unsold property costs dearly. These days the number of part exchanges actually increases when the second-hand market is sluggish.
There are several other factors in its favour, for example, a builder may be reluctant to reduce the price of the new homes generally as that would upset earlier buyers of similar property. By agreeing a generous ‘trade-in’ price for the existing house, the headline price of the new home remains unaffected. The second-hand house can then be sold on through a local estate agent by private treaty (q.v.) where the eventual sale price can be reduced through negotiation but the reduction is kept confidential. Often, empty and professional tidied up, these homes sell for a better price.
The bank funding the part-exchange deal may set limits – for example, by stipulating that the new home being sold must be worth more than the house being taken in part exchange by a set amount. Half of the cash may be preferable to the new homes standing empty for longer while these transactions look like turnover in the accounts giving scope for creative accounting.
From a new home-buyer’s point of view a part-exchange deal with a developer can avoid all the hassle of selling their existing property: it is quick, clean, certain and, usually, avoids any estate agency fees!
When offered a second-hand house in part exchange the developer will have it independently valued by a competent local surveyor. Sometimes the owner may nominate his own valuer to negotiate with the surveyor advising the builders. In due course, a firm offer will be made and left open for acceptance for a short period of time. The buyer knows that he can exchange contracts and not get involved in the uncertainty of a chain of sales. This can be a strong incentive to accept.
A word of advice: if you own a house which is proving particularly difficult to sell, the answer may well be part exchange. Then sell on the new house fairly quickly: it might be easier.
As just remarked, most new home builders make these scheme work by having an efficient system for handling the part-exchanged resales. By dealing with a large number of part exchanges they can afford to take the rough with the smooth. Perhaps the price you are offered is somewhat less than you were hoping to achieve but at least you will have a definite sale – no more worry, no uncertainty, and no fragile chain. And even if you do not like the new home that much, it may still be significantly easier to sell on again in a few months time.
From the builder’s point of view, most have an established
system and refurbish each property as it comes into stock with a team of workers
moving in the day after you move out. They will go through it quickly with a lick
of paint throughout, tidying up the kitchen and bathrooms where necessary and,
maybe, laying new clean carpet. This effectively ‘depersonalises’
the property widening its potential appeal. Sometimes they will be offered for
sale with special mortgage facilities. Either way the house is no longer your