Dear James: is part exchange a good way to sell my home?

    25 November 2019

    My home has been on the market for four months now and, after turning down a couple of low-ball offers, I’m considering getting a part exchange offer from a housing developer. Is part exchange a viable way to sell property or should I be wary of losing profit on my sale?

    You’d think this is a straightforward yes or no answer, right? Wrong! In fact, the right answer depends upon your personal circumstances. More than ever before, the housing market across the UK is not acting in unison. It’s not rising. Or falling. Or even static. It all depends on where you live in the country, the supply dynamics of your region and the price range of your property. That said, there are some important factors that will impact the market wherever you live.

    I’ll answer your seemingly simple question with a set of questions of my own. This should help you decide whether part exchange really is for you.

    1) Are you desperate to move?

    This may sound like an odd question but your motivation for moving determines whether this is something that would be nice to do (i.e. don’t do it) or for your health, family or sanity you must do. If it’s the latter, then you need to get on with it. If it’s the former then it is wiser to hold out for an individual sale and prioritise value over speed.

    2) Why is your home not selling?

    Four months isn’t actually a long time for a home to be on the market in this current cycle. Buyers face constant roadblocks to decision-making such as the financial crash, paucity of finance, Brexit and the general election. There are plenty of reasons not to move or to put things off! That’s why some recent research showed that on average (according to it takes 247 days to sell a home from the day it’s listed to the day it goes onto the Land Registry as sold. What does that mean? It takes a while! But does your home need work? Is there something that’s putting off buyers? Or is it simply overpriced? If it’s just a slow market you may be better to sit and wait. If there’s a reason, it’s not selling then you may be better to address the reason rather than take a hit on price.

    3) Why are you buying a new build?

    There’s nothing wrong with buying a new house, by the way. There are plenty of amazing developments out there and some fine developers too. But do beware. Even the best schemes, particularly if they are large, are phased. If you are buying into an early phase, you’ll need to prepare for two aspects. The first is that you could be living on or near a building site for years to come. The second is that, as a result of the supply dynamics of your specific location, although the general market may be rising, where you find yourself may be sluggish. How so? Think about it as a new supply of homes constantly on your doorstep and if you were buying would you buy new or second hand? Only second hand if there’s a tasty discount. And if that’s you who has to swallow that discount – well you see where I am going.

    4) Are you in this for the long term?

    If you are buying a new property as I have alluded to, there may well be a large amount of localised supply on the way. Even if you are not affected by the noise, mess or disruption, you will be by the supply. That means you need to be able to live in your “new” home for at least five but probably ten years in order to get a half decent return from it.

    5) Value and price are not the same thing!

    Back in the day when I actually did some studying, the hardest concept to grasp at the beginning of my real estate degree was the difference between price (what someone will pay for something) and value (what generally one might expect someone to pay for something). The first is a real transaction. The second relies on a range of assumptions. Rarely are these two figures the same. Also you must look at the difference between asking price and the price of your deal.

    Developers often hold onto higher prices for their properties so it all depends where they are in their sales cycle as to whether you will get a good or not so good deal. Right at the beginning they need to generate sales to show they are selling. And to set the prices. There won’t be much of a discount at this stage.

    During main marketing it’s about volume but maintaining levels to demonstrate the strategy and then at the end, there may be a deal to get something off the books. Or they keep the best until last and that’s where their profit is. Pricing might appear to be an art. In fact, it’s a science. Generally speaking, developers charge higher prices than the value of the property they sell.

    6) How is part exchange being priced?

    Some part exchanges are based on two valuations. The key is to work out how much of a discount they are taking to buy your home. After all, there is the cost of capital, of works and a whole range of other costs to consider. It’s a bit like selling a car: you’ll always receive a lower price for your vehicle if you part-ex with the sales garage unless you’re very canny and they are desperate to do the deal!

    Armed with all that information and answers to those questions, you can now take a decision. If you are set on doing a deal and you realise that you’ll have the price of your property that you are selling discounted and the home you are buying, probably, inflated. Then you may well go ahead. Unless this is an urgent or desperate sanity move you should not be proceeding unless you’re prepared to pay the price. And usually that price is too big a price to pay. A little patience and hard work will pay off and there isn’t a product on earth where the cash buyer who can buy today doesn’t get the best deal. I rest my case!

    James Max presents the Business Breakfast on TalkRADIO every weekday morning from 5 – 6.30am and is a qualified chartered surveyor. @thejamesmax