How Does Part Exchange Work On A House?
Simply put, if you want to move then a company will take your current home as part-payment for a new home that’s fresh on the market. Sometimes known as PX, the scheme might be particularly useful for those who want to upgrade to the ‘second step’ but have been struggling to sell their home and/or are frustrated with problems with chains that are holding up the process.
Because the arrangement is swift, and you’re only typically dealing with one developer, some people believe the process is perfect. Another advantage is the lack of estate agent fees involved in the process – this could save the homeowner hundreds or even thousands of pounds. Developers are aware of the boom in the market and are creating larger, more family-oriented homes that fit into the part exchange ethos.
However, things are not always as they seem. One has to ask what’s in it for developers, other than enabling someone to move into their new home quickly. The answer is that the price for the part exchange property being left behind can sometimes be problematic – and a bone of contention between buyer and developer.
What Is Part Exchange House?
Typically, a person moving to a brand new home can expect to receive 85-90% of the full market value of their property, with the developer keeping the remainder. The flip side of that could be that you might not have received the full market value anyway, so the deal might be worth it for a quick and less stressful sale. You might also consider this loss a fair deal, in that the developer is not only going through the process of buying your home but will also have to sell it as well.
However, if you want to extract maximum value for your home you should possibly hold out for a better price. Especially when one considers some of the advice contained in this Guardian piece. Property expert Henry Pryor says: “If you’re getting market price for your old home then you will be paying over the odds for the new one. With a few exceptions, a new home falls in value the very first night you stay there, some by as much as 10%.” Other ways that developers will entice potential movers include paying stamp duty or moving costs on their behalf.
An online search for part-exchange house brings up offers from virtually everywhere in the country, so you won’t be short of options. As an example from developers Taylor Wimpey, the process will be something like this:
*You’ll contact an employee at the developers and discuss the possible value of your existing home. There might be conditions concerning the value – if its value is any more than 70% of a potential new home, the deal might not be allowed. However, if everything is agreed you might be able to make a provisional reservation on your new home.
*Following visits, a valuation of your property will be prepared for the developer, who will then consider this before making you an offer (verbal then written). You’ll then need to instruct a legal team to start proceedings and liaise with the developers’ solicitors for your provisional reservation to become a full one.
As you might guess, the developer’s valuation is crucial. If the developer does not think they will be able to sell your home as a part exchange house, the part exchange may not be accepted. Therefore, homes that need major structural work or renovation, or that are in a poor location, might fall under this bracket.
And if the property value is too high (bear in mind that the idea of part exchange is to help people move up the ladder) then you also might hit a roadblock. This varies; as an example, described here by What Mortgage, Bovis Homes will accept your property if is valued at no more than 75% of the new home, while for Redrow it is 65%.
The Guardian piece mentioned above shows several other ways that Part Exchange can work. Waterstone Homes offers a FairPlay Scheme that allows customers buying a property at slab level (where just the foundations have been laid) to test the market. Managing director Simon Jehu said: “The scheme means we are able to buy our client’s property for an agreed price suggested by an estate agent, but market it at a higher price for a set amount of time. If the property is sold at a higher price than originally valued, the customer will get the remaining money – which could be anything from £500 to £15,000.”
Can I Part Exchange My House?
WeBuyAnyHome may be able to help with offering part exchange as a potential service if you need to move quickly. For more information on how we work, read up on the process, or for more information contact us here.