Property Part-Exchange Explained

Do you know about the property part-exchange strategy? New build property developers use it.

When you ‘trade in’ your home in part exchange for a new home, it’s called property part-exchange.

You’re probably familiar with and may have personal experience with this type of trade – i.e. part exchange but with vehicles.

For example, dealers often offer a trade-in deal to buy a new car and trade in your existing car as part payment.

Well, imagine doing the same with your home.

In this property blog post, we look at how the property part exchange strategy works.

Property Part Exchange

In the property market, the property developers often sell their new-build homes with the property part exchange scheme and notably, it’s popular in the UK.

As a sales strategy, trade-in works.  For example, would you buy a new car if you first had to sell your existing vehicle? Many wouldn’t, as they wouldn’t want to wait until their vehicle had sold before they could drive away in the new car.  The same applies to homeowners keen to grab a new home but fear they’ll miss out if they have to wait till their home sells first.

There’s no denying the fact that selling your home privately or even through a real estate agent should put more money back in your pocket than you’d get in part exchange. So if getting maximum return for your current home is your overriding goal, then the property part-exchange is not likely to interest you.

However, not all homeowners have the goal of getting the best price. The ease with which a homeowner can do the part-exchange their home and end up in a new home far outweighs the higher returns. For example, older or less mobile homeowners will put a lot of weight on their ability to remain in their current home until the new property is ready for them.

Plus, for many homeowners, not having to sell your property on the open market takes the stress and uncertainty away.  Not only is it stressful waiting to find a buyer there’s also the challenge of finding somewhere to live if the new build is not finished when you need to move out.

So how does it work?

When the property part exchange is available on a new build home, the developer will get an independent valuation of the prospective homebuyer’s current property.

The valuation will favour the developer insofar as it will be lower than the market value.
Homeowners keen on a property part exchange might put in a counter-offer if the initial valuation is not acceptable.

Restrictions

Developer-run part exchange schemes may have restrictions on the value of the property.

For example, Barrett Homes and Taylor Wimpey will only allow buyers to part exchange their current property if it is worth 70% or less of the property’s value being purchased.

Most developers will also have restrictions on the number of properties they can offer a part exchange scheme, i.e. not all the new builds can use the part exchange strategy.

Why use property part exchange?

The part exchange system works well for the developer and the new build buyer.

Certainty

You know your home has sold, and there is no danger of your buyer pulling out when used in the property part exchange system.

Around 30% of agreed property sales fall through before completion. Failed sales can be expensive and upsetting. The risk of a failed deal no longer exists with a part exchange scheme to sell your property.

Convenience

Selling a property is stressful and time-consuming. Using a property part exchange scheme means you don’t have to spend your free time preparing your property for sale, liaising with estate agents, or conducting property viewings.

Part exchanging your property allows you to fit your moving house around your life, rather than having to fit your life around your move.

Cost savings

Part exchanging your current property can also work in your favour price-wise. For example, estate agency fees usually cost between 1% and 3% of the final sale price.

On a house that costs £256,000 (the current UK average house price), that’s a fee of between £2,560 and £7,680.

When you part-exchange your property, you have no estate agency fees to pay. In some cases, the developer will also offer to pay your legal fees, a further potential saving of £1,000-£1,500.

A tip is to add the selling fees onto the part-exchange price and determine if you’re getting a good deal considering every other benefit.

Finding The Deals

A proactive approach to using the ‘trade-in’ system is to understand what your property is worth on the open market. Then identify new-build developments that have a part exchange system in your ideal location.

Do your research on the developer and their track record with part exchanges. When you feel confident to progress, visit the developments and talk through any part-exchange offering with the staff on-site.

Follow up with your legal advisor, i.e. property lawyer or conveyancer. Also, check with your financial advisor and or your accountant. You will want the sales agreement to be approved by your legal advisor and your financial expert to confirm it’s a good deal for you.

Summing Up

Property part-exchange is not new, but it’s more acceptable now as a way to secure a new home without having the hassle or stress of selling an existing home on the market. Much of that stress is down to the unpredictable nature of the property market.

Property part-exchange streamlines and simplifies the process of moving house, too, as you can stay in your existing home until your new build is ready.