Anyone looking to buy a new build property is likely to have heard of part-exchange. This transaction is open to anyone who already owns a home and is looking to upgrade and move on.
Whatever option you go for when buying a new build property, you are making a big decision and a sizable investment. Before you press ahead, it’s important to be informed and to understand the ins and out. Here, we’ll explore what part-exchange is, how it works, who is eligible for part-exchange — and is it really worth it?
What Is Part-Exchange?
So what is part-exchange? Essentially, with part-exchange, you trade in your house as partial payment for a new build home. You bypass estate agents and the open market while your property developer buys your house. They then deduct your house’s value from the cost of your new build. Due to the comparatively fast-moving nature of part-exchange, this is a great move for buyers who are eager to move quickly, with minimum stress. Part-exchange is also a good option for the property developer because they are guaranteed a buyer for one of their properties.
How Does Part-Exchange Work?
Part-exchange might sound good in theory, but how does it work?
Below is a step-by-step process of what to expect should you decide to use part-exchange to buy your new build:
Step One: You find a property development that offers part-exchange and talk to someone at the development site about your options.
Step Two: You find a property you love.
Step Three: Before you press ahead, you need to have your existing home valued by independent selling agents. This valuation will indicate the potential price your home will fetch on the open market. Most developers will ask for two valuations from independent agents, so they are sure the figure is right.
Step Four: This is when the developer makes you an offer (subject to survey) on your property. Many people are deterred from pursuing part exchange as they believe they will only get 75-80% of their home’s value. While some companies like this might dominate the web, in reality, many developers’ in-house schemes will over between 85 and 90% of the house’s value and if they work with a quality third-party specialist, you could get as much as 92% of your home’s value.
Step Five: Should you accept the offer, you will need to arrange a mortgage on the new property and instruct your legal advisors.
Step Six: At this point, you need to instruct your conveyancing solicitor to assess the new property and pay any relevant reservation fees, to secure your new build.
Step Seven: If the assessments are successful, and the surveys don’t uncover any issues, you will probably exchange contracts within four weeks
Step Eight: Upon exchange of contracts, you will be asked to pay a deposit on the property.
Step Nine: Once the money is released, you can complete the sale.
Exploring the Benefits of Part-Exchange
We have already briefly touched on some of the benefits of part-exchange, but for most people, the perks come down to convenience, ease and speed. Given that the developer buys your house, you don’t need to wait months until your property sells. There is no guarantee your house would sell on the open market, especially with everything that can affect or disrupt the housing market. With part-exchange, you are guaranteed a sale, which means less stress and concern.
Another benefit of part-exchange for buyers is you can bypass estate agents (and, of course, their fees, which can rack up). On top of this, the whole process is much speedier than the traditional purchase of a house, because you are not part of a chain. You can complete your move in just a few weeks, rather than having to wait months and dealing with the possibility of someone within the chain dropping out. Remarkably, 49.8% of house sales in England and Wales fell through before completion in the final quarter of 2018. Experts suggest this may partially be a result of ongoing financial and political uncertainty affecting buyer confidence. Buying a new house is stressful enough without having to worry about everything collapsing at the last minute.
Finally, it’s worth noting that if you are looking to buy a new build house but you haven’t sold your existing property, a developer usually won’t reserve the plot until you do. If, however, you opt for part exchange, this guarantees your plot and the home you want.
Eligibility for Part-Exchange
Eligibility criteria for part-exchange will vary between property developers. In fact, there are differences between ‘in-house’ part exchange schemes that developers offer and what can be offered when working with specialist third-party part exchange specialists. Such specialists will have more flexible criteria regarding the properties they will buy (any location, condition and value will be considered).
When it comes to ‘in-house’ part exchange schemes, there is a general trend:
- You need to own your own home.
- Your current home must be in good condition so the developer can sell this property on. Be aware that some developers will have preferences with regards to the type of property they are willing to buy. For example, some developers may not buy a house with a flat roof.
- The location of your old home will play a part in determining if you are eligible for part-exchange of a particular property.
- If your home is above a certain percentage of the value of the new build property — usually between 70-75% you will probably not be eligible for part-exchange.
- If you have a leasehold property, you will have to have a minimum amount of time left on the lease. Get in touch with your developer to find out what their stipulations are in this area.
Part-exchange can be a great option for anyone wanting to move up the property ladder and onto bigger and better things. To find out more, get in touch with part-exchange experts or developers who can help you on your way to your dream home.
About the Author: Chris Hodgkinson is the Managing Director of HBB Solutions. Chris is passionate about the property sector. He loves making deals and focuses on building the business in an ethical, fair and sustainable way.