Everyone says the real estate market is booming, but some areas in the UK are quiet as a mouse. Builders are pushing part-exchange schemes that promise to lock in profits. In the industry, this is known as “PX” and it looks like one of the most attractive options for desperate sellers.
But, is it
What You Get, And What You Give Up
When you enter into a PX deal, you’re agreeing to sell your home to a developer in exchange for a new home. That home is one the developer will build for you. This eliminates a few hassles on your part. First, it solves the problem of where you will get the money for the new home. Second, you don’t have to worry about the logistics of selling and moving into a home that’s not completed yet.
For the developer, they get a home that’s easy to sell, meaning their profits are all but guaranteed.
While this seems to be a great deal for the buyer, keep in mind that the developer wouldn’t do it unless he benefited too.
Developers want your home to be saleable, so you cannot typically get one to agree to a deal where your property is unmortgageable. In other words, if your home has structural defects, forget about it. Also, if you live in a leasehold flat with fewer than 80 years left on the lease, you’re out.
Most builders also want you to move up the ladder on the home. They don’t want to work as a free real estate agent. So, if you sell a home worth £250,000, you will need to upgrade to at least a £360,000 home in some cases.
That means a bigger mortgage for you and significantly higher payments.
The Details Of The Deal
This guide on part exchange houses will walk you through the process of what to expect. But, in general, you will have to enter into a contract with a developer, agree to have a new home built, agree to sell your old home to the developer, and agree on a move-in date.
You don’t pay an estate agency fee, which usually amounts to 2 percent of the sales price. There are no long chains, the transaction is simple and straightforward, you get a new property, and the sale is guaranteed since it’s being sold to the developer.
You must leave the home in good condition with no structural repairs needed. The value of the new property typically needs to be at least 30 per cent higher than the old property. Some developers require the exchanged property to be more than 70 per cent of the value of the new home (a slightly different calculation from the requirement on minimum bid price for a new home).
During the exchange, you will need to contact your local estate agent to find out what properties are in development in your area. Once you’ve chosen a new property, the developer will set up to have your property valued.
Once the valuation comes in, you will be made an offer based on the average value of other properties in the area. Usually, this amounts to 90 or 95 per cent of the market value of your home.
You will then need to hire or appoint a property solicitor and apply for a mortgage loan.
Next comes the property survey. A surveyor will come in to verify that there is no structural damage to your property. Once this is done, you will need to accept the offer and pay a reservation fee as well as sign plot reservation documents with the developer.
Most developers require a 10 per cent deposit. Once that’s received, the developer will either build the home for you or you will be ready to move (if the home is already built and ready to move into).
House sold sign
Who Is Eligible?
In most areas of the country, only homeowners who have a well-maintained home are eligible for a PX deal.
You must be willing to undergo a survey, several inspections of the property for valuation purposes, and sign documents which allow the developer to take possession of the property and sell it.
Some properties, even traditional homes, are excluded from these deals. For example, a mobile home, or homes with flat roofs might not be eligible for a PX deal.
Remember, developers are looking for a home that’s easy for them to sell in an uncomplicated manner. Custom homes, and mobile homes create additional challenges and roadblocks for the developer.
If you are looking to get out of a home immediately because you have to move for a new job or your home has been on the market for a long time without a serious bid, this might be the best option for you.
Darren L. Thomas is a mortgage broker. He likes to write about real estate investment topics. His articles can be found mainly on property investing and real estate sites.