What is part exchange?
Part exchange is when one item is traded against another. It is most commonly used when people want to buy a better car or property.
The existing item is used as ‘part payment’ for the new item you want to purchase. So, you want to buy a new house, you can part exchange your existing property.
Although this is sometimes done when you are buying a ‘second hand’ home it is rare. Few people selling a house have the ability to offer a part-exchange deal. Far more common is the use of part exchange to help you buy a brand new house from a house builder.
The builder of the new property will buy your current property and will deduct this from the price of your new home.
Not all builders offer this type of part exchange scheme so you do need to check before you make any commitments.
We do offer part exchange at Larkfleet Homes to people who meet certain criteria.
Who is eligible to part exchange a property?
Each builder will have their own sets of ‘rules and regulations’ for part exchanging a property so the best thing to do is talk with them.
It is important to remember that the property developer is looking to make a profit (yes, even at Larkfleet Homes!) so you need to read the small print and make you are fully aware of what the scheme involves.
It is not guaranteed that a property developer will buy your old home but it is likely if the property fits the criteria which the builder has set.
The basic requirement is that you are a home owner and want to purchase a new build home!
The criteria for agreement on a part exchange scheme usually include the following:
- The property is in a good state of repair – a property developer is very likely to become uninterested in a property that requires any structural repair as this will cost them money and make it harder to sell on.
- As a general rule, the exchanged property is often required to be no more than 70 per cent of the value of the new-build property.
How do I start the process?
To start the part exchange process, firstly you will need to find a property or development that you would like to proceed with and then simply get in touch with the builder. Some builders/developers have a search option on their websites which will enable you to search for new-build properties available on a part exchange scheme. But you can’t beat picking up the phone and talking through your options to get the ball moving quickly.
Each property builder/developer will have their own procedure but, as a general rule, the process goes like this:
- Qualification - Does your existing home match the criteria of what the property developer wants? You will be asked questions such as location of the property and its approximate value.
- Valuation - The developer will arrange for a minimum of two independent agents to value your existing home on its behalf.
- Reservation - Once the valuations have been made, the developer will make you a verbal offer and then confirm in writing. You don’t always have to accept the first offer!
- Sale process - Once you have confirmed you are happy with the offer, the sales process will then go ahead.
What are the pros of part exchange?
Part exchanging a property does not suit everyone but it does have some great benefits for those that choose this option:
- It is a guaranteed sale! You do not have to wait for your property to sell on the market which will reduce a lot of unwanted worry and help speed up the ‘selling process’.
- The property developer will want to get it turned around quickly and efficiently which is also great news for you!
- You will minimise any issues that can arise when you find yourself in a ‘property chain’. The developer/builder will be happy to reserve your new home for you, confident that you will be able to exchange contracts and move in on the agreed date.
- As you will be dealing with the property developer/builder, you won’t have to pay any estate agent fees.
- It is often viewed as an easy way of upgrading your property to a brand-new home and is a great way to bag your dream home!
What are the cons of part exchange?
Before you decide to make any big commitment, it is always best to weigh up the pros and cons.
Part exchanging your property can seem like a ‘quick win’ but there can be some disadvantages too:
- Firstly, there is no guarantee that your property will be accepted on a part exchange contract.
- You might get less money for your property than you would get in the open market.
- You might have a limited selection of properties to choose from (builders will not offer a part-exchange option on all the houses that they build).
- When you buy your new home you will be taking on a bigger property with more commitment.
Everyone’s circumstances are different. An independent financial adviser (IFA) with experience of part exchange (it is worth checking that they do have this experience – not all of them do) will be able to assist you to consider the options.