Are Part Exchange Properties A Good Idea?

Property experts have forecasted a downturn in the housing market in 2021 due to the end of the stamp duty land tax (SDLT) holiday in March and rising unemployment levels. Selling homes will therefore become increasingly difficult but builders and developers are offering part-exchange schemes to help their customers move quicker. But what are they and are they a good idea?

If you plan on buying a new build property and are struggling to sell your current home, you might be tempted to look into  part exchange as a possible solution.

What Is Part-Exchange?

The part-exchange house scheme enables a person to buy a new-build home without going through the traditional channels of selling their current property. The property developer buys the homeowner’s current property and deducts its value from the price of the new house.

Part exchange is a tempting option for people who want to move quickly, who are struggling to sell their existing property or simply wish to avoid the hassle of selling their home. The developer benefits too as they have a guaranteed buyer for one of their properties. Many of the well known new-build property developers offer Part exchange as it helps their reputation for customer service and attracts more customers.

How Does Part-Exchange Work?

Each developer will have their own process but the fundamentals are the same:

Once you have found a house you wish to buy with a new-build developer that offers Part-Ex, your current home will be valued. Standard practice is to complete two independent local estate agent’s valuations. Some developers only offer PX to buyers whose current home is no more than 70% of the value of the new-build property. If there is less than 30% difference between the value of the two properties, the sale becomes unprofitable for the developer. This is why part-ex is popular with homeowners looking to move up the property ladder.

The developer will make the homeowner an offer based on the valuations. If all parties are happy to continue, the homeowner will secure a mortgage and instruct a solicitor to complete the sale.

Some developers require a reservation fee to secure your preferred plot when the offer is accepted.

The steps to part exchanging are fairly simple:

  1. Get in touch with a developer that offer this service
  2. Choose a new home that suits your requirements
  3. The developer will then arrange for independent local estate agents valuations to take place on your property
  4. Once they have this information, they’ll make you an offer
  5. Once accepted your home will be purchased, usually within 8-10 weeks
  6. You’re ready to move into your new home

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Is Part Exchanging Property A Good Idea?

Part-exchange is only available on new-build properties. It’s often most suited to buyers seeking to upgrade to a more expensive home. However, there are pros and cons to Part-Ex and whether it can be considered a good idea very much depends on the buyers individual circumstances and priorities.

Pros
  • Security. When both seller and developer have agreed and committed to the transaction, the sale is pretty much guaranteed, unlike traditional house sales where the buyer can pull out right up to the day of exchange. There is far less risk of the sale falling through at the last minute.
  • Speed. On average, it takes around 50 days to find a buyer in the UK and a further 12 weeks to complete on the sale. Furthermore, almost half of all sales fall through before completion. Choosing to part-exchange means no relying on finding the right buyer and a simpler, quicker sales process.
  • Avoid Estate Agency Fees. Many Estate agents usually calculate their fee as a percentage of the sale price of your house – e.g. 1.2% + VAT. Others set a standard fee which is the same for everyone, regardless of sale price. Typically, fees start at 0.75% and don’t usually go above the 3.5% mark. There are no such fees or commission to pay for part-exchange houses. This could save you hundreds, possibly thousands of pounds.
  • No Chains. One of the biggest downfalls in many property transactions is the collapse of the property chain. This can occur when multiple house sales rely upon each other  to complete but one person pulls out. There is no risk of this with Part-Ex  since the sale agreement is between you and the developer only.
  • More Straightforward Process. When selling your home, you can endure months of viewings and disruption only to fail to sell at the end of it all. Part-exchange removes all this hassle as there are no viewings and you know exactly where you are in the sale process.
Cons
  • Lower Offer. You will not be offered as much as you might expect for your house. Property developers are looking to make a profit, so naturally, their offer on a Part-EX home will be less than the market value. The local estate agents’ valuations that took place offer a “selling price” rather than an “asking price”. If you’re determined to get a top price for your home, Part-EX may not be for you .
  • Part-EX Is Not A Guarantee. Even if a developer advertises a Part-EX scheme, your home must still meet certain criteria to be considered. Many developers will not accept properties with a short lease left to run and a minimum 30% difference between the value of your current home and that of the new property is often required.
  • Diminishing Returns. New-build properties begin to depreciate the moment you move in unlike some older properties, which can retain or even increase their value over the years. A new-build may be worth less when you come to sell it than the price you purchased it for.

Who Is Eligible To Part-Ex?

To be eligible for part-exchange schemes, homebuyers must:

  • Fully own the home they wish to sell.
  • Own a property worth around 60 to 85 percent of the asking price of the new home they wish to buy.
  • Be selling a home that is structurally sound and in good condition.
  • If the property is leasehold, it needs to be a fixed-term, usually with 80 years or more left on the lease.
  • Own a home in an appropriate location.
  • The home must be of a standard building design – uncommon building designs may be rejected.

To Part-EX or Not?

Part-exchange can be a good solution for homeowners who need to move fast. It’s simple, straightforward, secure, and much quicker than the traditional home buying process. However, it’s not for everyone. Review the pros and cons over again and speak to the developer. At the end of the day you must make the choice that is right for you.

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