What Is a Part Exchange House Sale – and Will It Work for You?

Part Exchange House Sale

What Is a Part Exchange House Sale – and Will It Work for You?

When buying or selling, many people assume that they just have to follow the traditional route, the path of what they think is least resistance! But there is more than one way to accomplish your goals. The key is exploring your options, weighing the pros and cons and determining which of these is the most viable solution for you, your household members, your needs and your budget. 

Among these options is a part exchange house transaction. What is this, what are the benefits and potential drawbacks and will it work for you?

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Chain Challenges

For those unfamiliar with the term, “part exchange” sounds a bit odd. Do you get part of a house? Fortunately, no! But to understand what it means fully, we must first look at the chain. Now this is a term you may be all too familiar with if you are trying to buy, sell or buy and sell. Oftentimes, you get stuck in a chain; that is, your transaction cannot be completed until others involved on the chain sold their homes.

This can create lengthy and frustrating delays. You want to move into a bigger house, a smaller house, your dream house… But you have to wait as your transaction is dependent on the ones preceding and succeeding it. Owner of House A wants to Buy House B, Owner of House B uses that money to buy House C, Owner of House C uses that money to buy House D… and on and on we go. All of the transactions are completed on the same day.

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As you can see, each house sale is a link in the chain, so to speak. The buyers need to receive the funds from selling their houses, and the sellers must successfully purchase the houses they want to move to. If one transaction is unsuccessful it affects each of the others. In that case, the remaining chain links have to find new buyers and sellers and form new chains. It is maddening at times!

Only 10% of property transactions in the UK have no chain. You likely find yourself in the other 90%. 

Where a Part Exchange House Comes In

In an effort to speed up the process, many home builders and developers allow a part exchange, enabling buyers to move without the chain. How does it work? They buy your existing home for a price that is guaranteed. They apply those proceeds towards the cost of the new home you want to purchase. So, in effect, you can move before you sell your house.

Typically, the builder or developer will instruct two independent valuations of your current home and quote you a price for the new home.

Get off the chain? Sign us up! But before you do a part exchange house transaction, take a moment to weigh the pros and cons:

On the Plus Side:

A part exchange:

  • Delivers a guaranteed sale. This is one of the biggest benefits for those wanting to streamline the sales process. It can take away a great deal of stress. 
  • Removes you from the chain. Chains can be aggravating and drawn out. There is also a risk that a link will break, and that you will pay the consequences. Part exchange takes you out of that cycle. 
  • Results in a faster sale. When time is of the essence, a part exchange can take weeks rather than months or longer.
  • Eliminates the need to pay estate agent fees. Estate agent fees average around 1.18% + VAT. This can add up. When you do a part exchange, you get rid of these costs.

On the con side:

With a part exchange: 

  • You sell for a price below market value. This is a major detriment for many. When you go with a part exchange there is no ‘asking price.’ There is a definite ‘sale price,’ and this may or may not be suitable for your needs. It is important to know the value of your home and if the sale price is appropriate. 
  • Your house may not be suitable for a part exchange. Whether the investment company you are working with does not operate in your area or you are in a short leasehold situation, you may not be a good fit for this type of transaction. 
  • You have that guaranteed price. Now this can be both a benefit and a drawback. If you are in the process of waiting for your new home and property prices shift, you are still on the hook to buy for the agreed upon price (even if the market value of the home has dropped significantly). You are legally bound to this agreement. 

With any option you are considering when it comes to selling your home, it is important to factor in all the variables and determine what works best for your situation.

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