Consider home swap in tough market

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Consider home swap in tough marketConsider home swap in tough market


The temporary home swap is yielding to the permanent home swap.

A house trade happens when the parties buy and sell simultaneously.

Home swappers can get mortgages, just as on conventional purchases.

After spending two years trying to sell her Florida home, Pam Farley decided it was time for a new strategy. She quit looking for a buyer and went after sellers who were interested in trading homes with her. A few months later, she signed the closing documents and swapped her house in Sarasota for a house in New Mexico.

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Since the housing market tanked, homeowners wishing to upgrade to bigger homes, downsize or relocate have become more open to the idea of making a home swap, says Sergei Naumov, CEO of GoSwap. Naumov founded the website where owners list properties, ranging from real estate to cars, for trade. Since it was founded in 2006, the site has grown from a few dozen users to about 36,000 active registered traders and has 60,000 to 80,000 visitors a month. In addition to other similar sites, many homeowners also list house swap deals on Craigslist.

The house-swap strategy had long been used by owners of vacation homes who often trade temporarily. But the idea of a permanent home swap, although more popular than a few years ago, isn't an option that most sellers consider.

But they should, Farley says. "Everything is a little scary when it's unknown, but it was the best decision we ever made," she says. "When we had our house on the market (for sale), we kept having to reduce the price until I finally said, 'This isn't working, and it's getting scary.' And that's when I found various house-swap sites."

How it works

A home swap is not as complicated as it first sounds, says Naumov.

"It's just that instead of one transaction you have two transactions happening at the same time -- one selling your house and a second buying the other party's house," he says.

Simply put, swapping properties is like selling your home to a person and buying another home from that same person, ideally on the same day.

The key is to spell out in the contracts that the closings should take place simultaneously, says Rafael Castellanos, an attorney and managing director at Expert Title Insurance in New York.

The swappers sign separate purchase and sale agreements for each of the houses being traded. The contracts spell out the price of each property. If one home is more valuable than the other, the buyer of the more expensive house pays the seller for the difference at closing. In other words, if you swap your $200,000 house for a house worth $300,000, you would pay the seller $100,000 at closing.

If either of the properties being traded has an outstanding mortgage, the existing lender is paid at closing, just as in a traditional sale.