Permanent Home Swap: Solution to a Volatile Real Estate Market
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Paolomargari Let’s say the real estate markets are down (which happens from time to time, as we all know). You want or need to sell your home, but buyers won’t pay what it is worth (or even enough to leave you with a zero balance). And if you have already purchased your new home, you may have to insist on a sale price that the market won’t bear, or settle for a sale price that leaves you further in the red. There is an alternative…a Permanent Home Swap.
Some people prefer (or are required due to circumstance) to buy a new home before selling their existing one, and there is considerable risk in doing this during a volatile real estate market. Buying the new place for a price you are willing to pay based on your estimated sale price could leave you holding the ball when you realize that the market won’t bear the sale price you need in order to afford your new place.
And if you are required to move (for a new job, for example), the stress of buying and selling can be monumental.
A Home Swap allows you to circumvent a volatile real estate market by (literally) swapping homes with another home owner in the same boat as you.
Home Swap Basics
Although the term “home swap” also applies to those who swap homes temporarily for vacation purposes, this article refers to the Permanent Home Swap concept.
Under a Permanent Home Swap arrangement (also referred to as a Simultaneous Sale), a homeowner will buy another’s home and sell their own to the same person simultaneously. The criteria include:
- The closing date must be identical for both homes.
- The same title company must be used to consummate the transactions together.
- Purchase and sale agreements for each property are drawn up, as usual.
- Deeds and other closing documents are signed on the same day.
- Mortgages for both properties are paid off on the same day, and new mortgages are taken out.
- The old mortgages switch to the new ones on the closing date, just as in the case of a normal sale. The only difference is that the seller and buyer are the same people.
- The cost of a Permanent Home Swap is about the same as any other real estate transaction, since it is still technically the sale and purchase of a property.
- Your respective homes do not have to be of the same value or stature. Some people may want to downsize or move to a less expensive location, while others may want the opposite. The trick is to find somebody who wants what you have, and whose place is what you want.
Benefits of a Home Swap
- Value Preservation: In a bad real estate market, you don’t have to liquidate your house at a loss in order to move.
- There are no tricky closing periods to navigate, with possible additional expenses of finding and moving into a temporary place between the sale of your place and the closing date of your new place.
- You don’t have to worry about double mortgages if you end up owning both homes simultaneously (another closing date risk).
- You never get stuck owning two places if you cannot sell yours at all after buying your new place.
Potential Pitfalls of a Home Swap
In order to find your potential home swap candidate, you may wish to subscribe to a service. Beware of the requirement to pay a monthly fee to list your property, as they will have no vested interest in helping you find a home swap partner since the longer you list your place, the more money they will make. Instead, search for a flat fee or even better, a fee that is payable only upon finding a suitable home swap candidate.
Also be cautious of any promises or guarantees that your home will sell, especially within a certain time frame. As you can imagine, locating a buyer who wants your home and whose home you want can take time.
Advice for Home Swap Candidates
Permanent Home Swaps are real estate transactions like any other, so the standard rules of operation apply:
- Visit the property.
- Hire an inspector.
- Be prepared to negotiate the purchase price.
- Consult a real estate lawyer (especially in the case of a Home Swap, as the regulations in each area or country can be different).
Where to get More Information and/or List Your Home
Although you can list your place for free on Pad4Pad, the one-time $20 listing fee will allow you full access to the site including the ability to search for other places and suggest swaps.
With Online House Trading, you don’t pay any fees until you find a house match that looks promising. Then, you will pay under $30 to use the Site’s full features.
And last but not least Craigslist has home swaps as well.
In researching for this article, I was unable to locate anybody who has done a Permanent Home Swap recently. Do any of our readers have experience with Permanent Home Swaps that they would like to share with us?
Tagged: Real Estate and Housing, buying and selling, permanent home swap, real estate, simultaneous sale
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This is a really interesting idea - I had wondered if this went on, but had never bothered to really look online to see if anyone was doing it on an official level. Thanks, Nora.
"Considering most people prefer to buy a new home before selling their existing one..."
Really?! Since Wisebread is for the discriminating consumer, I would hope that "most people" reading this blog would be in the opposite camp. They would "never get stuck owning two places" from the outset.
I've consistently sold houses BEFORE buying another, and would never buy a home without at least a condition that my current one sold. Period.
It's puzzling that anyone would buy a new house before selling the old one. That sets you up for the very real possibility of owning two houses, and paying two mortgages, at the same time.
It's far harder to sell a house in a bad market than it is to buy one, for all the same reasons. The typical argument is "I don't want to make a "double move"--but isn't that so much better than carrying a double house payment? A double move is a temporary problem, and one you have some control over. I've seen people go a year or more carrying two house payments! That's serious money.
Don't even put a contract in on a house until you sell the one you have. Put your stuff in storage, move into an extended stay hotel, close the deal, then put a contract in on the new one.
If you can find somebody who needs to move where you are, and you need to be where they are... don't sell.
You can just rent from each other.
This strategy is suggested by Anita Bell (an australian finance writer), as a means to get into the housing market. There are considerable tax benefits to paying a rental mortgage over a home mortgage.
The downside to this method, is that it requires a certain amount of trust. But on the other hand, if they trash your house, you have the keys to theirs...
Great points about selling yours before buying. Here are some still real scenarios that can happen though:
A) You sell your place conditionally, then buy the new place, and your conditional sale falls through. Naysayers of buying before selling would probably still consider this risky though; maybe the sale should be firm first.
B) If you need to buy in a different area where there isn't a lot of movement in the market, it may be tempting to take advantage of a home on the market, especially if historically the homes in your own neighborhood sell quickly. Again: risky, but people do it. Circumstance can dictate some different or uncharacteristic decisions.
@kazari - Great idea! I've heard of rental mortgages, but not in the form of a home swap. Has anybody done this (or does anybody know someone who has done this)?
There is a website that you can sign up to for this, does anyone remember what it is?