Part exchange has been a component in the property market for many years. It can be used for many differing applications but, is primarily offered in the new build sector.

How does it work, who benefits from it, what are the pitfalls, what’s in store for the future and where might it be most useful?

In its simplest form property part exchange is much the same as motor car part exchange. A housebuilder will take their customer’s home as part payment for a brand new one. The benefits to both parties are reasonably obvious.

From the housebuilders point of view, they sell another new home, gain more control over the transaction and critically its timescale. In turn, their customers don’t have to go through the rigmarole of putting their home on the open market (thus saving on estate agents fees too) and then having to cope with all the vagaries and potential disappointments our system allows. They can be secure in the knowledge they have a guaranteed buyer and can safely look ahead without that awful dread we’ve all experienced of having to start the whole process over and over again.

Part exchange is available to pretty much all segments of the market but, perhaps its most pertinent area is the retirement living sector. All too often the thought and fear of the whole moving process leads to the people who arguably need to move the most putting it off until it’s possibly too late. Here particularly, a straight forward solution can alleviate the greatest levels of stress and replace them with a happy conclusion for all involved.

This all sounds wonderful and certainly, to a large degree it is for both parties. But, add to the equation ‘criteria restrictions’, ‘balance sheet exposure’, ‘on costs’ and quite naturally some doubts may arise.

Buyers

Imagine you’re a buyer. In most cases, when you embark on part exchange your housebuilder of choice will obtain pricing guidance on your property from two or three of your local estate agents. This guidance will form the basis of the price they’re willing to pay you for it. But they will also in many cases, for their own safety’s sake, insist on a differential of up 30% between the price of yours and theirs, meaning if yours is worth £300,000 you’ll have to be buying at around £428,500 plus. They might only buy in certain locations too. Between them, these criteria might scupper the deal before it starts particularly for those downsizing or on a job move from another part of the country.

Also, you will suffer a small loss on your own property to secure the home of your dreams. This is because the housebuilder will have ‘on costs’ which must be accounted for. These include funding the onward marketing of your home and of course maintaining it, paying legal fees and running costs. In some instances though, this loss can be reduced to almost nothing if the housebuilder is able to top up their offer by either reducing the price of the new home or by offering other incentives, such as providing carpets, curtains etc.

On costs

Now, these on costs can be a real headache for the housebuilder. Having to manage, maintain and sell a stock of pre-owned properties is difficult enough on its own but, they have another, potentially bigger issue lurking. Holding this stock not only diverts much needed cash from their primary raison d’etre, building more new homes but, also directly impacts profit margins setting off alarm bells in board rooms and shareholders AGMs alike.

Solution

So, looking forward, is there a solution which might satisfy the needs of both a little better? Something which doesn’t have deal breaking criteria restrictions for the customer or balance sheet exposure and on costs for the housebuilder. Add a little healthy competition on price too and you have the new offering provided by pXchange Ltd.

pXchange delivers a service to housebuilders which enables them to offer their customers a genuine cash buyer for their home in days, without having to buy in themselves, thus expelling their balance sheet and on cost worries.

In turn, their customers benefit from their homes being offered to several corporate property traders via a trading portal originally conceived by pXchange’s sister Developer Solutions Ltd. This platform creates competition as the traders can bid-up their prices, ensuring the highest is offered by them. There are no criteria restrictions just a simple yes or no and offer, normally within 48 hours.

Add to that an experienced consultant to co-ordinate everything and guide everyone through the free to user process and suddenly achieving that next important sale is clearer and nearer for housebuilders as are their customers new beginnings.

And, looking a little further ahead we’re developing our next generation portal with IFA’s in mind, giving them access for their property investment minded clients.

Chris Taylor is Director at pXchange Ltd and has over 30 years’ managerial experience in property including several director level posts at companies both large and small.
 
This article was originally published on the Mortgage Finance Gazette website at
https://www.mortgagefinancegazette.com/market-commentary/property-part-exchange-31-10-2017