How Does Part Exchange Work on a House?

Miranda Sussman

Selling or buying a home can be a complex and stressful process. With long waits and lots of paperwork, along with the chance for it all to collapse, it makes for something many of us wish could be a little more simplified. Luckily, it can be, and one option is part exchange. A route to sale that is a little more stable than some of the others available.

In this edition of our blog, we look a little closer at part exchange so you can decide whether it is your best option when looking for a fast house sale.

What is part exchange?

A part exchange scheme allows you to sell your current home and use the funds as a part payment towards purchasing a new property.  Rather than list the property on the market and wait, the developer purchases the home immediately, subject to survey results.

Part exchange operates in two ways. You can opt to sell your home to a new build developer, using the funds from your sale to purchase a new build property from them, or you can approach a cash house buyer who will purchase your home so you can then use the funds to buy any property.

Both options have their benefits as they provide a seller with an easy route to sale and one that avoids the risk of a chain break. Unlike selling via traditional methods, you bypass the estate agent, resulting in a saving on fees, commission, and time.

Who can use a part exchange scheme?

Anybody needing a quick house sale, and willing to buy a new build property (if going via the developer route) can benefit from a part-exchange scheme. For the developer and the seller, it’s a win-win situation. The developer has a guaranteed buyer for the property, and the seller have a guaranteed sale. However, there are some rules that many developers follow. We’ll cover those a little further down the page.

If using the cash house buyer route, it works in more or less the same way. Anybody can sell their home to a cash house buyer, and then use those funds to put towards a new home, whether it be a new build or an old property.

How does part exchange work?

The process for part exchanging a home is quite simple. If using a cash house buyer, you would simply get in touch with them to organise a free no-obligation cash offer for your home. Should you then accept the offer, the sale can be completed fast. In the case of Gaffsy, we do it in just seven days. You then receive the funds, and purchase your new home as normal, using the cash you were paid to go towards it.

Should you be buying a new-build though, it is a little different. The process of part exchange for a new build is often as follows:

• Find out as much as you can about the new property development, and whether part exchange is an option.
• If part exchange is possible, find a property that you like, and find out its cost and any other relevant details. You may be directed to an estate agent by the developer, or you may be able to deal with the developer directly.
• Organise viewings of multiple properties within the development. Homes will sell very fast on a new development so it’s best to have a few options.
• Having told the developer of your wish to part exchange, and having found a home you wish to buy, the developer will organise valuations of your current home. Two or more independent estate agents will provide this valuation to give a more realistic total.
• If the valuation matches what the developer was expecting, they will make you an offer. Just be aware, this offer is subject to a survey so the offer could decrease or even be withdrawn.
• If you are happy with the offer, you can accept it. Now knowing what the mortgage value will be, apply for your mortgage too.
• The developer will organise a survey of your home. You should also appoint a solicitor to survey the new build home you are planning to buy.
• You may be asked at this stage to pay a reservation fee for the new home.
• If the surveys return the results both the developer and you are hoping for, contracts can be exchanged, and a deposit paid. The deposit is normally around 10% of the value of the house you are buying. This amount may be taken from the value of the house you are part exchanging.
• The final stages happen behind the scenes, and you’ll soon be moving into your new home.

How long does it take to part-exchange a house?

The process works much faster than selling via the traditional route of using an estate agent. Where property transactions like that can take anything from 6 weeks to 6 months or longer, the whole process of part exchange is quite rapid. Typically, contracts can be exchanged within four weeks and then after that, it can be almost instant for getting the keys to your new home.

Different developers may have different time scales though, and depending on how the rest of the development is progressing you could find the process either speed up or slow down. A benefit of this though is that there is no chain to worry about. Your buyer is set in stone.

Sometimes, people buy “off-plan,” which means you are buying a property that is not yet finished. This can mean you are waiting longer for the sale to complete but again, your buyer is guaranteed so you can remain in your current home until the new house is ready if need be.

Eligibility for part exchange schemes

You’ll find each developer has its own rules but overall, almost any homeowner can use a part-exchange scheme if they wish. In most cases though, a few caveats will apply.

Your house will need to be in good condition, something the survey will pick up if the valuers haven’t already. In addition, the sale potential as well as the location of the home will be considered. If the home is not in a desirable location or doesn’t have the market appeal other properties in the area may have, the developer may not wish to buy it.

The value of the property will also need to be substantial enough to cover approximately 75% of the value of the new build you want to buy. If you don’t own the freehold, you will also need to show that the lease of the property has more than 80 years remaining on it.

How much will I get offered if part exchanging my house?

Each developer may have a different business model, and therefore offer varying prices on property. You can certainly expect to get less than market value. Somewhere in the region of 5-15% is not uncommon. This may seem strange, especially as the developer had at least two independent valuations carried out. The secret here is that the developer will ask for selling price valuations rather than asking price. This selling price then gives the developer an idea of how much they can sell the property for within a few weeks of listing it after they acquire it from you.

What are the pros and cons of buying a part exchange house?

Part exchange offers some key benefits to those looking to buy a new home.

Pros of buying part exchange

There are perhaps five key advantages to buying via a part exchange scheme.

• No estate agent fees.
• A faster sale.
• Less stress as the sale is more or less guaranteed.
• No potential for a chain break.
• You get to remain in your current home until the new one is finished.

Cons of buying part exchange

Similar to the advantages, there are also disadvantages to buying via part exchange. We’ve picked five.

• You will be offered less than market value for your home.
• The chances for negotiations on the price are more limited.
• New builds are more expensive so you may still have a large mortgage to cover the outstanding costs.
• The schemes vary per development and may all come with different requirements.
• A new build home requires you to pay for a snagging survey. Whilst not required, it could save money in the long term if you do.

What kinds of property can I part exchange?

Each developer will have specific rules and there are often limits on the types of property they are willing to buy. As we mentioned earlier, the condition of the property matters a great deal, but certain structures may also be deemed unsuitable for a developer. This could be due to it being a home of non-standard construction, one that has suffered from fire damage, or has an insufficient amount of time remaining on its lease.

Part exchange can be a great way to secure a new home, but the caveats can often restrict you from being able to sell. An unsellable house for sale, for example, won’t appeal to a new build developer. It will to Gaffsy though. If you have a home that has struggled to sell in the past, speak to us. We buy any house, regardless of condition, location, or type. Removing the concern that a part-exchange scheme won’t work for you and that the traditional market will pass you by. We start with a free cash offer, and then if you accept, we work to complete the process in just seven days. Longer if you prefer. Speak to our property experts today to generate a quick house sale.