Part exchange means the developer buys the home you live in now, and you buy one of theirs. You skip the open-market sale and the chain that comes with it. The convenience is real. The price is usually the part you need to examine, because the offer is a trade, not a valuation you have to accept.
How the two sales fit together
You are in two transactions at once. The developer, or a company it uses, agrees to buy your home. You agree to buy a plot. The two prices are set off against each other, and you pay or receive the difference, alongside your mortgage. Completion is designed to happen on the same day, so you are not left owning two homes or none.
In England and Wales an ordinary sale is not binding until contracts are exchanged. A part-exchange offer can expire, and it can depend on a survey, on your home meeting a condition standard, and on you reserving a plot by a date. Ask when the offer becomes binding, and what happens if the new home is late. A delay on the building site can leave you with a sale of your current home that no longer matches your moving date.
The price is usually below the open market
Developers are taking on the cost and risk of selling your home afterwards. They price for that. The offer is commonly a percentage below what you might achieve with an estate agent, after you have also allowed for agent fees you will no longer pay. The only way to judge it is to compare like with like: the part-exchange figure against at least one independent view of value, and against what a local agent would expect you to clear after fees.
Ask who values your home, whether you can show a second opinion, and whether the figure can be revised if a survey finds work you did not know about. Also ask which homes they refuse. Leasehold flats, homes with short leases, non-standard construction and properties in poor condition are frequent exclusions. Find that out before you stop marketing your home elsewhere.
Stamp duty and the home you are leaving
You still pay Stamp Duty Land Tax on the new home in England and Northern Ireland. If you complete the purchase while you still own your old home, the higher rates can apply, an extra 5% on top of the ordinary bands. You can claim a refund if the old home was your main residence and you sell it within 36 months. A same-day part exchange is meant to avoid that gap. Your solicitor confirms the order of the two completions.
Where one property deal is the price of another, the stamp duty rules on exchanges can use the market value of the home you are buying, not only the cash you pay on top. Schedule 4 to the Finance Act 2003 is the legislation your solicitor is applying. Do not assume the tax is charged only on the difference between the two prices. Ask them to explain the figure before you exchange.
What you give up
Part exchange is often an alternative to other incentives, not an extra. Taking it can mean you lose a deposit contribution or a stamp duty offer. Put both packages in pounds, including the fees the developer will charge for the legal work, the survey of your home, and any reservation on the new plot.
You also give up control of the sale. You will not choose the buyer, and you will not benefit if the developer later sells your old home for more. That is the point of the arrangement. It is a good trade when the discount is smaller than the cost, delay and risk of selling yourself. It is a poor trade when you could sell for enough extra to cover the agent, a few more weeks, and still keep another incentive on the new build.
What to know
- Compare the offer with an independent view of value, after a realistic allowance for the selling costs you would otherwise pay.
- Check which properties are refused, and how long the offer stays open if the new home slips.
- Stamp duty is still due on the new home. Completing while you still own the old one can trigger the higher rates.
- On an exchange of properties, the tax can be based on the market value of the home you are buying.
Questions to ask the developer
- What figure are you offering, who valued it, and how does it compare with an open-market sale after fees?
- Which costs do you take from my sale, and which incentives on the new home do I lose?
- What happens to the offer if my survey shows work, or if your build is delayed?
- Will the two completions happen on the same day, so I am not treated as owning two homes?
Sources
General information only, not financial or legal advice. Rules and offers change, so check the sources and your own adviser before you rely on a figure.