Thoughts on part exchange

MeGaMaN_2

Hi all, hoping the MSE hive mind can help!

Family of four in relatively small 3 bed terrace looking to move into somewhere bigger. Our house is decorated nicely and has a huge garden but is an unconventional layout with the bathroom and toilet downstairs which is the only negative feedback we've had from viewings.

We paid £115k in 2007 and put it on the market around 6 months ago after receiving valuations of £125k, £120k and £115k. We were hoping to achieve £115k.

We had an offer in October which we negotiated then accepted the second offer of £118k which was more than we expected. Unfortunately just before xmas our buyer pulled out. It's worth pointing out we haven't had a huge number of viewings and whilst the feedback has been mostly positive we haven't had any other serious interest.

As is often the case, my wife is desperate to move and has been looking into part exchanges against a new build (Persimmon). They have had our home valued and claim it's worth £100k but are willing to give us £110k for it as they know about the £118k offer we accepted. I was sceptical about part exchange schemes to start with and this has reaffirmed my distrust, £100k is a very low valuation. (note I understand the whole "price to sell in 6 weeks" concept and this isn't the case with this valuation)

If this was a private offer rather than part ex. then whilst £110k is a little low I would consider taking it on the chin as I would still have enough equity & savings to come up with a deposit. That said, with it being a part ex. the impression the builders have given in our first conversation when they revealed their offer is there is no room for negotiation.

I'm hoping you guys can share your experiences of part exchanging your home against a new build property - realistically how much can I expect them to budge on the offer price on my property and / or the asking price on their new build (£195k is their asking price).

I have also read the "asking price" of new builds tends to be inflated by 5% - 10% and if you are buying one without a part ex then this is roughly how much you can expect them to come down from the "RRP".

I would really appreciate any thoughts & suggestions as I don't want to be in the same situation in 5 years time that I am in now where I have paid over the odds for a house and as a result am unable to move again. It's taken me three years of working as many hours overtime as I can get to clear down the negative equity of our current property!

charleyroo

Hi OP

I'm in cohorts with Persimmon as well lol (although i'm looking at the HTB scheme - so i'll be doing Home Change or whatever it may be called rather than part ex) also around 195k. Where are you looking/what house type if you don't mind me asking?

I think a lot of it depends on where they are with selling their development. I have a friend who had a valuation way,way under what she wanted, so she left it a few months. By the time she went to see them again, they offered what she'd originally wanted to sell it for, because they were just selling off the last few of this house type.

Have you thought about trying a new EA yourself?

Building_Surveyor

Personally I would never do part exchange. The developer needs to make their money somewhere so I doubt you would get the asking price (unless you've undervalued it). Really they are taking away the hassle of selling from you which is all priced into what they will offer.

Jeffrey_Shaw

Part-exchange with a Developer has one advantage (but only for the Developer and not for the other party): no SDLT to pay. This exemption was retained when, with the replacement of SD, most of the P/Ex. exemption disappeared.

MeGaMaN_2

charleyroo wrote: »

Hi OP

I'm in cohorts with Persimmon as well lol (although i'm looking at the HTB scheme - so i'll be doing Home Change or whatever it may be called rather than part ex) also around 195k. Where are you looking/what house type if you don't mind me asking?

I think a lot of it depends on where they are with selling their development. I have a friend who had a valuation way,way under what she wanted, so she left it a few months. By the time she went to see them again, they offered what she'd originally wanted to sell it for, because they were just selling off the last few of this house type.

Have you thought about trying a new EA yourself?

Hi Charleyroo, it's a 4 bed detached in the Midlands (The Salisbury is the style).

We've not tried switching agents yet but it is on the cards as ours seem pretty useless! From speaking to friends and colleagues this seems to be the general consensus when it comes to EA...

Agree with Building_Surveyor's comments - this was my assumption - it's extra hassle for the developer so they will inevitably have to get their money back one way or another.

I suppose I would arguably save a few thousand in estate agents fees by part exchanging so £110k isn't a terrible offer but what I was getting at in my OP was I would imagine their property isn't really worth £195k thus if I was a first time buyer for example I would have thought that price could definitely be negotiated down. How much leeway is there? No idea! Will they negotiate on their price in a PX? I would guess not

ethank

The best negotiating position you can be in is in No chain or Sold subject to contract. There are too many risks with a P/X for the developer for them to heavily discount.

Kimmy1980

Hi, we have part exchanged with persimmon (end Oct) just exchanged contracts. We have been very happy so far our house was valued at 120000. We had guessed 125000. Persimmon offered us 117000 and we negotiated 3000 (asked for more) off the new build and turf and flooring throughout to which they agreed. (Paying 229950 for new build)They put our house up for 119950 a sale fell through before Xmas at 110000 and now they have another buyer and have sold for 107000- £10000 less than what they paid us. We definately feel we got a good deal just waiting for the house to be finished in to move in in march.


Good luck.

ethank

Just my opinion but I think that when a buyer finds out it is a P/Ex they just give ridiculous offers as negotiating hard with a company is far easier than with a person!

lessonlearned

I am a retired new build negotiator and have some experience of part ex.

As others have said the amount you are likely to be offered for your property and any other discounts available will be dependent on what stage the development is at i.e. is it the beginning or nearing the end.

How advanced is the property you are interested in, is it buid complete, has it been standing idle for some time. How quickly is this development selling.

The thing to remember is the developer will have £millions of capital tied up, much of it borrowed with interest payments to be met. The developer will want to sell as quickly as possible so the tighter their cash flow the better your chances of getting a good deal.

Do you know when their financial year end is. Even if you have missed it, there is always pressure to meet quarter end or half year end deadlines. The shareholders can be very demanding….

If you can guarantee the developer a quick transaction then you might benefit from the quarter end deadline, say end of March. This is why come February you will see developers pushing for legal completions for March, early April. Look out for adverts that say "Be in your new home by Easter" - a dead giveaway that there are deals to be made.

If you are told that there is no more cash available for discounts etc then try asking for goodies such as fencing, turfing or carpets.

It can cost at least a couple of grand for a purchaser paying retail prices to carpet a house, even with cheap carpeting. The developer buys in bulk and gets huge discounts. It will cost them very little to be generous and "throw in some carpets";)

Never accept their first offer, always push for more.

Be sure to use the immortal words "If" and "Then".

"If you do this, then I will do that". "I will give you this, if you do that" Etc.

The phrases are of course, interchangeable. n

"If you give me X discount (carpets or whatever), then I will exchange contracts in 4 weeks."

Good luck.:D

MeGaMaN_2

Ok guys, quite a big update!

After being initially told they couldn't move on the offer for our property I left them to stew for a couple of days as we had an appointment to look around a house of the same style that the roof had just been put on (this afternoon).

Spoke to them on the phone this morning prior to our appointment and they initially were unwilling to move at all so I made it clear we were not interested on those terms and would happily walk away. I insisted on them either dropping the asking price or increasing their offer on my home. I left it with them and they called back about an hour later and incredibly offered to put 5% of the deposit towards the new house (which equates to £9750)!

I didn't see this coming and am really pleased with their offer as it also obviously means I only need to find the other 10% of the deposit! Not sure if I am being naive but this feels like a big win and a much better result than I expected. Thoughts?

I wouldn't commit there and then and insisted on having an evening to think about but did agree to go back first thing in the morning with a view to putting down a deposit to hold and filling out the paperwork etc.

Still need to understand all of the other little extra expenses i.e carpets, appliances, turf etc. but still am very pleased with the outcome.

So now for the maths to make sure I have it right in my head:

Builders offer for my home = £110,000
Outstanding Mortgage on my home = £99,500
Equity = approx £10,000.

New build price = £195,000
15% deposit required = £29,250
£29,250 - £10,000 - £9,750 = £9,500 i.e. I need £9,500 from savings etc. which I can get together.

I guess I still need to pay stamp duty (£2,000) then I am left with the "legal fees" plus anything else I've not considered. If anyone can put a really rough estimate on any of the above that would be great.

FYI the plot we are looking at won't be complete until April / May so is only at foundations stage.

Thanks again guys!

lessonlearned

What kind of help are they offering with legal fees and expenses.

Don't forget you will not have to pay Estate Agent's fees but they ae still other costs. What about the EPC (Energy Performance Certificate), then there are your legal fees for selling, your fees and disbursements for buying, mortgage arrangement fee etc.

Really drill down into these costs and see if you can get them to chip in. Failing that look at carpets or turfing etc

Well done on playing it cool and not grabbing their hand off. It's always good to ask for thinking time……

So far so good but it's still worth pushing for a bit more

One thing that strikes me is that they are still only at foundation stages and yet they have been quick to increase their offer.

This suggests that they need to demonstrate to someone (bank or shareholders) that they have some "forward sales" in the pipeline.

There could still be a bit of wriggle room here.