Out with the old, in with the new: Understanding property part exchange

What is a part exchange?

A part exchange allows the developer to purchase your current home as part of the transaction when you buy a new plot from them.

Rather than marketing the property and waiting for a buyer, the developer will become both your seller and the buyer. They will then find a seller on the open market. The agreed purchase price of your property is deducted from the price of the new property.

The advantage of this is quite often simplicity. There is no chain, no buyers withdrawing last minute, no estate agent fees, and a lot more control.

Whilst developer schemes may differ slightly, usually, as part of the reservation process, the developer will assess whether your home qualifies for a part exchange and obtain valuations from local agents or surveyors. They will then make an offer based on those valuations.

Should you accept this offer, your solicitor will act on both transactions, and you will usually exchange and complete on both properties simultaneously. 

Is a part exchange right for me?

With a guaranteed buyer, there can be an increase in certainty and a reduction in stress.

Lengthy property chains can be a source of anxiety for many. Not all buyers in a chain may be willing to work towards the developer’s timescales - whether that is the exchange deadline or completion taking place on notice, which can be several months away.

When it comes to exchange, delays can arise for a number of reasons. A buyer further down the chain may not have sold their property, be waiting for a mortgage offer, or encounter complicated legal issues that take time to resolve. The risk to you is that the developer can re-market your plot or you may lose out on any incentives if you don’t meet the deadlines.

Completion can present a different challenge. Some buyers may be reluctant to wait for an indefinite period until your plot is ready. This can leave you facing the prospect of moving to temporary accommodation or finding a new buyer.

However, a part exchange might not always be the right solution for every new build purchaser.

Not all properties will qualify for a part exchange scheme. Eligibility criteria may vary, but some developers may exclude certain property types, such as flats or maisonettes, properties purchased through buying schemes such as First Homes or Shared Ownership, or homes in particular locations, conditions, or certain values.

Part exchange offers can also be lower than you may hope to achieve on the open market. The compromise often reflects the convenience and lack of estate agent fees. This is something you will need to consider when reviewing your budget.

It’s also worth noting that not every property chain is complicated. Some transactions proceed quickly and efficiently. All property transactions are different, and it is important that communication channels between you, the developer, and the solicitors are open and honest. 

The legal points: What to look out for if you decide to proceed with a part exchange

If you do decide to proceed with a part exchange, it’s important to review the reservation agreement at an early stage. The terms of the scheme usually set out specific conditions which must be satisfied, as well as any associated costs for which you may be responsible. These conditions will usually form part of the contract.

Many developers may require you to have gas and electrical safety tests carried out, which is not a legal requirement under a traditional sale. Arranging these checks promptly is essential, and you should ensure the cost of testing, along with any necessary remedial works, is factored into your overall budget.

In addition, developers often require a retention to be held as part of the transaction. This is a sum of money usually retained by the developer’s solicitors for a period following completion. It is released once the developer has confirmed the property has been left in an acceptable condition and in accordance with the agreed terms.

How can Thackray Williams' New Build team assist you?

If you're interested in learning more about a part exchange and wish to discuss your options with a solicitor, contact Georgia Kowalyk on 020 8461 6150, or a colleague in the New Build team on 020 8290 0440.