Part Exchange of your House – How it Works
Selling a property can be hard work at the best of times. The simple truth is there’s a great deal of uncertainty involved in the house selling process. Unfortunately house chains fall apart all too often as buyers pull out and this can cause a great deal of frustration. This is why there’s been an explosion in the number of people looking at part exchange homes schemes in recent years.
By agreeing to part exchange your house you could avoid most of the uncertainty in a traditional house sale. You could sell your house quickly and remove a great deal of stress when buying a new build home.
In this guide we look at part exchange schemes in general and explain how these work.
Quick Page Navigation
- What are part exchange homes schemes?
- What do I need to know about part exchange?
- Advantages of part exchange house schemes
- How does part exchange work?
- Choosing a solicitor
- What to look out for when part exchanging your house
- How do I qualify for Part Exchange schemes?
- A good alternative to part exchange
What are part exchange homes schemes?
Part exchange schemes in the property world have been around for some time now.
A part exchange homes scheme is where you trade the value of your current house against a new build property. Ultimately your property serves as part payment for a new build house. The main difference with this kind of scheme is that a property developer takes the place of an estate agent. And so you will be dealing with the development company that puts up the new build houses instead. This way of selling will help you avoid having to repair a property chain and means you will own a brand-new property.
One of the reasons some sellers like part exchange homes schemes is that the sale of their property is more guaranteed. Anyone who has been stuck in a property chain that hasn’t moved for months will know the misery this can cause. Under these circumstances a part exchange house scheme could be just the answer.
Many of the major developers in the UK offer part exchange schemes, the terms and conditions of which can vary. We advise you look closely at the small print before going ahead with a developers scheme.
What do I need to know about part exchange?
Like any property sale, as the seller you negotiate with a buyer. In this case it would typically be the new build property developer. The developer will agree a price to buy your house from you in order to help smooth the way to sell their new build property.
Developers claim to offer a fair price under part exchange schemes based on the current market value of your home. In reality, you should expect to receive less than the market value of your house. Remember, developers are looking to make a profit through the scheme. The profit they stand to make from any part exchange scheme will depend on two things; how much they pay for your current house and how much you pay for the new build property. By adding these two sums they could generate a more substantial profit. It all depends on how successful they are in re-selling your previous home afterwards. A typical discount to the true market value would be in the region of 20%.
The developer will also apply certain rules when it comes to choosing which houses they buy. They are in the strongest negotiating position. There is more information about this below.
Advantages of part exchange house schemes
There are a number of advantages in selling your home via a developers part exchange scheme:
- If you choose to use part exchange, you won’t need to deal with estate agents and pay their fees. This could be an advantage, as some agents demand fees ranging from 1% to 3% of your home’s sale price. And who wouldn’t want to save that kind of money? Because of this, you could save thousands of pounds you would have spent on fees alone.
- Speed plays a vital part in most house sales. As well as the speed of the process, you deal with the ultimate buyer (the new build developer).
- There will often be little in the way of frustrating developments in your property chain. No more agony of being told a potential buyer (who you never met and could not influence) has pulled out meaning your house chain has collapsed.
It’s a much simpler selling process, with no chain. And, assuming the developer agrees to buy your house, the best part is you will eventually move into a brand-new property at the end of it.
How does part exchange work?
Part exchange schemes to buy new build properties typically work as follows. (However, do check with the developer in question, as schemes may vary in detail).
To begin with, look for new build homes in the area that can provide a part exchange product. Then approach the sales staff on site at the development or talk to a local estate agent that may be acting on their behalf.
Next, find the new build home you’d like (and can afford) to buy. There will often be many properties to choose from at the beginning of the site build and just a handful at the end. It can sometimes pay to view sites in the early stages of construction. This could mean you having greater choice over plots and greater bargaining power too as developers look to get their sales pipleline established.
Provided you can find the perfect property you can then start negotiations to buy. If you are thinking of part exchanging your house it’s at this point sales staff will want the details of your current home. This is so they can begin to form an opinion on it’s value and start to work out if a deal can be done.
The valuation process
Typically, most developers will ask two independent estate agents or valuers to value your home. They’ll need to do this before they can make you a formal offer. However, beware, they will be instructed to provide a ‘selling’ price rather than an ‘asking’ price. A selling price means a value that the deveoper can acheive in just a few weeks of marketing by selling at a very competitive price.
Provided the developer is happy with the valuation for your own property they will make you an offer to part exchange your house. At the next stage, you’ll have to decide whether to accept the overall offer or not. If you do, then you will need to arrange a mortgage on the new build house you will be buying. Money Saving Expert.com offers the following guide to re-mortgaging, which can be downloaded as a free PDF.
Note that any offer from the developer is always subject to a detailed property survey just like any other house sale. It’s at this point the developer will ask you to put down a reservation fee or deposit. This is necessary to demonstrate that you’re a serious and committed buyer.
Choosing a solicitor
Once you’ve agreed to buy the new build house you’ll need a solicitor or conveyancer to help you complete the sale. This is an important role, so make your choice carefully. The Money Advice Service has provided the following tips on choosing a solicitor or conveyancer. The developers sales staff may also be able to help provide details of solicitors they have found to offer a reliable and speedy service.
Your solicitor will be responsible for ordering all of the usual formal checks when buying any house. These will include the Local Search, Mining Search and others deemed necessary given a property’s location. The solicitor will also be responsible for liasing with any lender you have and for communicating with the solicitors acting on behalf of the new build deveoper.
At the same time, the developer will instruct a formal survey of your existing home. This is to check there are no serious problems such as structural defects. Assuming no serious issues have been unearthed in the survey, contracts are usually exchanged within four weeks.
Before exchange of contracts you will be asked to pay a deposit of approximately 10% of the value of the new build property. This may be taken from the current value of the house you are part exchanging so that you don’t have to find the money separately.
Once contracts have been exchanged it is typically just a matter of weeks before you can move into your new home.
What to look out for when part exchanging your house
So, that is what the process of selling your house in part exchange for a new build property might look like.
It all sounds straightforward. Are there any downsides? Well, some people believe you should watch out for some aspects of a typical part exchange scheme.
An article in The Guardian newspaper said a part exchange scheme offer “sounds like a blessing if you are struggling to find a buyer, want to be chain-free, and avoid estate agents’ fees”. “But beware that when a developer or builder offers to take homes in part exchange, there is at least as much in it for them as there is for the buyer,” said the Guardian article, from 2014.
The Guardian claims that house builders “are typically vague” about how a purchase price is worked out.
The article also advises that sellers should check how much their home is worth themselves, before agreeing a part-exchange contract. So, it would be worth getting a least one independent valuation for your house before entering into a part exchange scheme. You could do this by simply arranging for a local estate agent to visit your home. If you do plan on doing this think about letting the agent know why you want the valuation as they may want to make a small charge and in doing so be more than prepared to provide more background detail in writing.
Another article by What House? advises that you could end up getting less for your property than by selling through traditional methods.“The independent valuations that the developer obtains will provide a sale price for your home, not an asking price. This means that you will generally be offered less than the market value of your home,” says the article.
The new build developers view
If you are part-exchanging your home it may be impossible to negotiate a significant discount on your new house, says What House? Instead, the developer may hold firm on the asking price. They are in a strong negotiating position, as you need them to buy your existing property to close the deal.
Developers won’t buy every property just to suit their part exchange scheme and increase overall sales. Certain types of homes are typically excluded from the schemes – more details are below.
The full article on part exchange schemes by What House? can be read here.
Also remember with these schemes you can only part exchange your home against a brand new, new-build property.
Owning a completely new property can have its advantages and disadvantages. Often you will have less choice of properties to buy than if you were choosing from the wider housing market. And new build homes typically have far smaller gardens and rooms than other older homes.
How do I qualify for Part Exchange schemes?
To be able to take part, more often than not, your current property must be in good condition. Developers want to take properties they can sell on quickly. They will be looking to relaise their profit as quickly as possible so they can maintain strong cashflows to move forwards.
As an example, some developers will only offer part exchange when the house you trade in is worth no more than 70% of the selling price of the plot of land being bought.
Again, remember to check the detailed requirements in terms of the value of the home you are purchasing with each new house developer.
Properties that are leasehold can be a challenge. For these, developers may insist that a fixed term – typically more than 80 years – remains on the lease. Leasehold properties are those that are only owned for a fixed period. Typically, they are flats. But houses, especially if bought through a shared ownership scheme, can be leasehold too. There has been a lot of controversy over these in recent years.
Once a lease comes to an end, the landlord regains ownership of the property. More information on leaseholds is available on this government website.
As we said above, each developer offering a part exchange contract will apply their own terms and conditions.
The valuation stage for your existing property is vital. Once a valuation has happened, the developer may reject your property because they feel it would be difficult to sell on.
Your property will also be rejected for sale if significant issues are unearthed in the building survey. For instance, these would include structural faults.
Remember, with part exchange you are very unlikely to receive your home’s full market price. But, balanced against that, the developer will remove the hassle of selling your home. If they do take your house in part exchange.
Be prepared to negotiate
Bear in mind that developers want to sell all the new homes they have built on their site as soon as possible.
They have already gone to the trouble of financing, planning and building the development. They want to realise the fruits of their hard work and will have a very good idea of the value of every unit.
However, as with all things in life, don’t be afraid to negotiate.
If you are having problems talking the sale price down or getting more money for your existing property, consider looking elsewhere.
Would the developer pay your Stamp Duty or any of your fees, such as solicitor’s fees? What about providing white goods for your new home, or carpets?
A good alternative to part exchange
If you want to avoid the nitty gritty of getting into a developer’s part exchange scheme there are other ways of speeding up the sale of your property.
While a part exchange scheme can offer benefits they can have their limitations too.
A good alternative is to find the right property buying company. While there are many of these businesses around, not all offer the same guarantees, quality and service.
If you want to sell fast and avoid negotiating with a housing developer, National Property Buyers can help as a professional house buying company.
We will make you an offer for your home regardless of its condition. Our home buying process is straightforward and we strive to make the sale as smooth and quick as possible. Not only that, we communicate with our customers at every stage of the buying and selling process.
National Property Buyers has been buying properties directly from homeowners for over 20 years.
During this time, we have demonstrated a commitment to customer service. If you sell to us, we deliver on our promises every time. We don’t make false promises.
Instead, we ensure you are kept fully informed throughout the sale all the way to your completion. We put the extra effort in, so when you decide to sell to us, it is as stress-free as possible.
Like to find out more?
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Alternatively, contact one of our team today at National Property Buyers on 0115 740 1900.