Dear Monty: Is a home ‘trade-in’ a good idea?

The Progress-Index - At Home - - NEWS - By Richard Mont­gomery Dear Monty

Reader ques­tion: We are think­ing of down­siz­ing and found a home at an open house. The agent of­fered that we could “trade in” our cur­rent house. They com­pared it to trad­ing in the old car. What do you think of trade-ins for houses? Andy and Mar­cia P.

Monty’s an­swer: “Trade-in,” “guar­an­teed home sale,” “home buy-out” or sim­i­lar names have been avail­able for many years. There are ma­jor dis­tinc­tions in the names, and some are more con­sumer-friendly than oth­ers. This type of of­fer­ing seems to be more preva­lent, or more of­ten uti­lized in times of easy lend­ing and ro­bust mar­kets. I am not aware of any trade or­ga­ni­za­tion that lists real es­tate com­pa­nies that of­fer guar­an­teed sales pro­grams, but many mar­kets have a real es­tate com­pany or two that of­fer such a pro­gram.

— A con­tin­gency that states the of­fer is sub­ject to the owner ac­quir­ing the new home and a dis­clo­sure of any real es­tate com­mis­sions due.

There are a num­ber of rea­sons tradein pro­grams have not seen gen­eral ac­cep­tance in the real es­tate in­dus­try. Con­sumers are skep­ti­cal. Trade-in pro­grams are more com­plex than a tra­di­tional sale/pur­chase. There is more risk to the bro­ker and more train­ing and over­sight of the agents. Ad­di­tion­ally, there are fewer lenders that of­fer a loan prod­uct to real es­tate com­pa­nies tai­lored to the unique cir­cum­stances of a pure trade-in pro­gram. Fi­nally, many real es­tate agents are re­sis­tant to the con­cept of guar­an­teed sales as they feel it com­pro­mises the agency re­la­tion­ship when the agent-turned-buyer ends up with the house. Their com­mis­sions are also at stake, which can be a de­ter­rent to an agent.

De­spite the skep­ti­cism, some bro­kers see a trade-in pro­gram as an ad­di­tional ser­vice to their clients, a vis­i­ble point of dif­fer­en­ti­a­tion from com­peti­tors and a pro­gram to in­crease rev­enue. re­quired.

When no pur­chase is re­quired, it sig­nals a pro­mo­tional tool to ac­quire new list­ing in­ven­tory or per­sonal in­vest­ment. Be­cause there is no other rev­enue with only one home, the “guar­an­teed price” is likely to be lower than a “trade-in” price. Stated an­other way, when the real es­tate com­pany has as­sured rev­enue from a sec­ond home sale, there is more fee in­cen­tive for the real es­tate com­pany that al­lows more po­ten­tial for a higher trade-in price.

When you find a real es­tate com­pany with a home trade-in pro­gram that looks and feels like the de­scrip­tion in this ar­ti­cle, you can:

— Pre­vent the pos­si­bil­ity of own­ing two homes

— De­ter­mine a worst case sce­nario be­fore you make a de­ci­sion

— Lock in the pur­chase of the new home

— Elim­i­nate the cost of mov­ing twice

Like other ma­jor pur­chases, in­ves­ti­gat­ing a home trade-in pro­gram re­quires ac­tive due dili­gence. Con­sumers will of­ten find them­selves in cir­cum­stances where a home trade-in makes good sense.

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