Written by: Cally Worden
In an effort to boost a still-sluggish housing market in some areas, builders are increasingly offering part-exchange deals to entice buyers. Known in the trade as ‘PX’ schemes, this type of deal basically enables you to trade in your existing home as part payment for a new build property. It’s chain-free, misses out the estate agent fees, and negates the need to find a private buyer, but are these deals really as good as they sound on paper?
No such thing as a Free Lunch
As with any great deal you would be naive to imagine that you are getting something for nothing. There has to be benefit gained by the developer or builder in order to make offering PX deals worth their while. Most deals include a slightly woolly statement that insists two or more independent valuations will be made on your current property to ensure you receive a fair price. But these ‘independent’ valuations are often arranged by the developer themselves. Savvy buyers entering into a PX deal will make sure they get their own valuations done too, for comparison.
Naturally, the price you are offered for your property under a PX deal will be towards the lower end of its market value. But the builders are the ones taking the risk in assuming ownership of it, so that is really to be expected. In areas where the housing market is buoyant, sellers would perhaps be better advised to hold out for a private buyer rather than entering into a PX deal, as selling in the normal way is likely to deliver a higher price for their home.
The Importance of Negotiation
Individual circumstances will always dictate where your priorities lie. If your house has been on the market a while, or you need to relocate in a hurry for a new job, for example, then taking a hit on the value of your home in order to secure a PX deal may be the best option for you. But you can still save yourself money by being sure to negotiate. Developers generally operate with a degree of slack in their profit margins – never accept the first PX offer you receive, and be sure also to drive down the purchase price of your new home as much as possible.
Swings and Roundabouts
Property developers are in business to make money. If, under a PX deal you appear to be receiving a great deal for the price your existing home, chances are the developer will be seeking to recoup some of that money in the price of the new one they are exchanging it for. You may feel that you are getting a great deal, that may be full of incentives like new white goods, and stamp duty or moving costs covered, but remember that the value of your new home will drop on average 10% the day you move in.
Just like new cars, new properties go through a period of price re-stabilisation. You gain the benefit of a spanking new home, but you have to expect to pay for the privilege. Provided you are planning to remain in your new home for a number of years this isn’t generally an issue, as the market will adjust around you. But be aware that any PX deal will be sure to more than cover the cost of the risk taken on by a developer in taking over your old home.
Not all homes are suitable for PX deals. Exclusions will typically include homes that are considered to be unmortgageable for any reason, properties with structural defects, and leasehold homes with less than 80 years remaining on the lease. Basically developers are looking to acquire only those properties that they can sell on with relative ease.
Bear in mind also that most PX deals will only consider existing properties worth up to a maximum percentage of the value of the new home. Barratt Homes, for example will only consider PX deals on homes that are worth a maximum of 70% of the selling price of the new property they are offering. This makes PX deals particularly attractive to homeowners looking to move up the property ladder.