For many years now it has been the norm that we take our cars to the dealer and part exchange them when upgrading to a newer or larger one, however this is a phenomenon becoming increasingly more occurrence in the UK property market.
In a similar way to how it works for cars, you are looking to buy a new house, but can not sell your current house privately, and the agent/seller of the house you are interesting offers to take your existing house or old property as part exchange for the new one.
The biggest challenge is finding a seller willing to do this, and like cars it is usually only the big builders of new homes. They are keen to sell and often have a handsome profit margin from the construction to selling price.
‘PX’, as it is known in the property trade, allows greater financial and timescale certainty for sellers, especially in today’s dipping and uncertain market, where homes are taking months just to find a buyer plus months more for paperwork to be finalised.
Developers are the biggest promoters of PX facilities, mostly to help shift homes priced between £200,000 and £400,000. They believe it tempts buyers into moving more rapidly, because in theory it can avoid delays incurred by registering with estate agents, arranging viewings for prospective buyers, and negotiating over offers.
But while it can clearly be helpful for sellers, there is a hitch. Those opting for PX must accept less than the market value for their old home in return for the certainty of being able to get it off their hands.
The developer typically offers around 90 – 95% of the market value of your current home, but it’s a guaranteed sale, it usually happens fast, and it avoids the need for estate agency fees.
Eligability for PX?
1. Be a homeowner already
2. Wanting to buy a new build
Depending on developer but a few other rules:
- The value of your existing property should not exceed 70 per cent of the value of your new home (the exact percentage may vary).
- Your existing property must be in good condition – anything deemed unsuitable will be highlighted in the survey, allowing you to rectify it / accept a lower offer from the housing developer before going ahead with the part-exchange.
- Property types that are generally excluded are: houses with structural faults, properties with flat roofs; homes deemed to be un-mortgageable; mobile homes; and studio flats.
- Some property developers will stipulate that your old home and new home are within a specific radius.
- Leasehold properties must have (typically) 80 years left on the lease.
- A retention fee is usually held (generally around £500) to ensure that your existing house is in a satisfactory state before you vacate it. This is returnable upon inspection.
So the question is how do you make sure you’re not being ripped off?
A Guardian article stated that Barratt homes, Bellway, Talyor Wimpey and others use multiple valuations for a property and then take an average or the middle one, but overall they are unclear and there is little consistency.
No officical rules or guidlines have been put in place by FSA, RICS or other authorities.
Advice & Tips
· Choose a reputable firm
If you buy a new-build home and want a part exchange deal, you have to accept the PX firm that is working in alliance with the house builder. If it’s a reputable builder, it should be a reputable exchange company.
· Expect an offer of no more than 85 per cent of the home’s market value
That’s not 85 per cent of a hyped-up price but 85 per cent of today’s market price. In a strong market you should expect 90 per cent but at the moment we’re not sure whether prices will fall or how long it’ll take to sell a property.
· Make sure you get three well-informed valuations
Good part-exchange firms should have two local estate agents and one chartered surveyor to make valuations.
Find out how well they know the agent/surveyor and ask to get one independent of your choice
· Don’t pay an up-front fee
Some firms ask for an advance administration fee of £500 or £1,000 when you get involved in an exchange deal. It’s not necessary and probably says something about the calibre of the firm, so don’t use them
The number of properties bought through part exchange schemes in the UK have surged in popularity in 2011.
Purchases have increased by 36% compared with 2010 totals and are on track to hit nearly 19,600 by the end of the year. The increase when compared to the 14,400 in 2010 is a significant upward trend in the use of part exchange as an incentive by house builders.
This is even more significant because overall property sales volumes have fallen, so a greater proportion of house sold have part exchange deals.
In the first 10 months of the year alone, part exchange schemes have been used in nearly 16,400 sales, already 2,000 more than in the whole of 2010.
Private new home development has remained subdued, with 6.6% fewer new homes started in the UK in the first half of 2011 compared with 2010. In the first half of the year 40,090 new homes were started in the private sector , 2,850 fewer than in the same period of 2010.
Developers currently have approximately 1,511 unsold second hand homes in their inventories, an increase from 1,100 at the end of 2010. At the peak of the part exchange market, developers had an estimated 2,320 new build part exchange homes on their books at the end of the financial year in 2008.
As developers’ commitment to part exchange schemes increases, it’s crucial they consider the timely and efficient disposal of second-hand stock. With for sale property prices falling in many parts of the country, the longer properties remain unsold, the more the portfolio will devalue.
This sector is mostly dominated by developers, however I need come across one private company that offers part exchanges, or homes bought for cash
“Operating independently since 1998, Quick Move specialises in the rapid cash purchase of residential property. Our professional and competitive service provides clients with a quick, secure and efficient sale. Having bought more than 3,500 properties Quick Move is the largest and most respected company in the field.” That is what the website says. Looks like a promising proposition.
An example on their website shows that they made an offer that was 82% of the value, and that they are fair better than developers because they will give you an offer across all market conditions and geographical locations.
I couldn’t tell if this was like all those other business that have sprung up in this time of recession, webuyany…. and cash4…. so it thought I’d do a little digging and found a Money Saving Expert forum on the topic. A user had quoted that a similar company had quoted up to 60% of the real valuation.
An article in the Independent also confirms that offers are likely to be under 80% of the real value.
It is hard to conclude whether part exchange or cash sales are worth it, it depends on personal situations and individual companies. Many companies offer a free valuation so it may be an idea to get a few and compare as well as do extensive research of other valuation sites like Zoopla.
All in all times and markets are changing and firms are innovating new business models, keep the property market a very interest place to be a part of.