- What is the essence of the trade-in scheme
- What property can be exchanged
- The scheme of the transaction. Classic trade-in
- Alternative trade-in scheme
- What to look for when conducting a trade-in transaction
- Advantages and disadvantages of such deals
- When is it profitable to use the trade-in scheme?
What is the essence of the trade-in scheme
The trade-in scheme was originally used exclusively in the automotive industry. It consisted in the fact that you could give your old car, and in return buy a new car at a lower price, minus the cost of the old car.
Gradually, a similar scheme began to be used in real estate transactions. As a rule, it is offered to their clients by developers seeking to quickly sell apartments in a building under construction. Sometimes real estate agencies offer to buy an apartment according to the trade-in scheme.
There are two options for such transactions:
- Most often, speaking of trade-in, it is understood that a developer or realtor will buy his apartment from the owner of the apartment, and then the former owner will acquire new real estate from the same developer or realtor, usually for a larger amount. This property is pre-booked for a member of the trade-in scheme, so he will definitely not be left without a roof over his head. Typically, in such transactions, the interval between the sale of an old home and the move to a new one lasts no more than a few days. This is the classic trade-in scheme..
- The second type of trade-in (also called an alternative transaction) is that the owner of the apartment concludes an agreement with the developer or realtor, according to which his housing is put up for sale and an apartment is reserved for the owner of the property, which he will acquire under the trade-in scheme.
After his own real estate is sold, he receives the money with which he buys the reserved apartment. Such contracts are concluded for a specific period (from one to several months or a year). If during this time the property is not sold, then the transaction did not take place.
What property can be exchanged
Not all housing can be sold under the trade-in scheme. There are a number of criteria that developers and realtors usually put forward:
- The property must be located in the same city as the new home to be purchased. Otherwise, it will be more difficult for the second party to the agreement to implement it, and with trade-in, the speed of the transaction is one of the most important criteria.
- There should be no doubt that the person owns the apartment legally. Otherwise, the risk increases that there will be no buyer for the home, which means that the transaction will not take place..
- The dwelling should not have a long history of change of ownership (usually they are guided by a tenure period of three years). Otherwise, the risk increases that the sale could be challenged by one of the previous owners..
- Homeowner must be of legal age. According to the legislation, an apartment cannot be sold on behalf of a minor until permission from the guardianship and guardianship authorities is obtained and an equivalent property is purchased in the name of the child, which contradicts the logic of the trade-in scheme.
- The property should be of interest to a wide range of potential buyers. You cannot sell a communal apartment by trade-in, because it is very difficult to find buyers for it.
- The apartment must not have registered tenants. This will again complicate the sale of such housing..
The scheme of the transaction. Classic trade-in
- A realtor or developer is selected who buys out apartments according to the trade-in scheme.
- Appraisal of the apartment.
- All the details of the transaction are discussed.
- A booking agreement is concluded with the developer, according to which new housing is reserved for the owner of the apartment.
- The apartment is bought by a realtor or developer, and the same money is used to purchase the reserved housing.
- The former owner of the apartment formalizes the ownership of the new property.
Alternative trade-in scheme
- We are looking for real estate agencies or developers who can sell housing under the trade-in scheme.
- Real estate appraisal.
- All documents necessary for the sale of real estate are collected.
- Legal examination of the collected documents is carried out.
- The owner’s property is up for sale.
- After a buyer is found for the apartment and makes an advance payment, a booking agreement is concluded with the developer. This allows you to reserve housing, which will soon be moved by the owner of the apartment.
- After the sale of the home, the owner of the apartment enters into a regular equity agreement with the developer.
- Ownership of new housing is being formalized.
What to look for when conducting a trade-in transaction
It is important that an independent appraiser determines the cost of an apartment. If these actions are carried out by specialists of a development or real estate company, the estimated value of the real estate will most likely be underestimated.
Fixed cost of the apartment to be bought out
When choosing a company with which a trade-in will be conducted, it is important to pay attention to one condition: whether there will be a fixed price for the apartment that will be bought out. After all, if the apartment of a participant in the transaction is sold only after six months, and by that time the value of the real estate reserved for him will grow by 10–20%, he may simply not have enough money to buy it out. As a result, he may be left without his apartment, and without a new home..
If realtors are involved in the transaction – only a service agreement
If the owner of the apartment will not buy new property directly from the developer, but through a real estate agency, it is necessary to ensure that the agreement between the owner and the agency is called a service agreement, and not an agency agreement. According to the legislation, the agency agreement can be terminated unilaterally.
Advantages and disadvantages of such deals
- Whatever trade-in option the real estate owner chooses, he will be forced to sell the apartment at a significant discount. In some cases, it can go up to 30%.
- The period from the moment you leave your home until you acquire new real estate is the most dangerous period for an apartment owner. In fact, he stays on the street.
- Most often, developers use the trade-in scheme to quickly sell apartments in buildings under construction, so a participant in this scheme will have to choose housing from a limited number of options.
- With the alternative trade-in option, a deposit for new housing is most often required. If the old apartment is not sold within the agreed time frame, then the deposit will be lost.
- After the sale of real estate, its owner gets the right to purchase new housing at a fixed price (if provided by the booking agreement). This is a serious advantage, because, often, after spending a year selling his home, his former owner sees that prices in the real estate market have changed, and a new apartment will cost much more than he planned..
- In the classic trade-in option, the transaction is carried out almost instantly. This is a strong case for this scheme for people who urgently need new housing..
- The home owner does not need to spend a lot of time and effort searching for buyers and conducting a transaction to sell their property. Or it will be immediately bought out by the second party of the trade-in transaction or the second party will take over all the hassle of selling the apartment.
When is it profitable to use the trade-in scheme?
Here are just a few situations in which a trade-in scheme can be beneficial for Russians:
- The apartment owner wants to quickly acquire more expensive housing, but is unable to take out a mortgage to buy it.
- The owner of a city apartment wants to move to a cottage community under construction in the suburbs. But while he sells his home in order to bail out the required amount, the construction of the village will be completed and real estate prices in it will rise sharply.
- A family that owns several apartments wants to exchange them for a large country house, but does not want to waste time looking for buyers for all of their apartments.
Thus, a trade-in scheme in the sale / purchase of housing can be a real salvation in a crisis and instability in real estate prices..