With a glut of houses on their hands, builders are resorting to creative tactics to entice prospective home buyers. One tactic builders are using now is the offer of a new house with a trade-in for the owner’s existing home.
In June, builders faced a median wait of 8.4 months to sell a completed home, the longest delay in selling time in the U.S. in the past 25 years, according to the U.S. Census Bureau. Not only are builders feeling the squeeze of the housing market, but owners looking to sell their houses continue to have a difficult time finding qualified buyers. According to the National Association of Realtors, in August there were 3.9 million unsold existing single-family homes on the market in the U.S., the most since 1982.
“While trading in a car is a familiar practice, the thought of trading in a house is a new one for most people,” said Steve Cox, BBB spokesperson. “The process can be beneficial for both the homeowner and the home builder, but because a house is such a considerable investment, anyone looking to take advantage of such a deal needs to be fully aware of the potential pitfalls.”
For homeowners looking to trade-in their old house for a new one, your Better Business Bureau is offering the following advice to avoid pitfalls.
Go with a Reputable Builder
Homeowners considering a trade-in for a new house should always check out builders with their BBB. BBB Reliability Reports are available online, free of charge, at: www.bbb.org. Homeowners should also confirm that the builder meets all necessary state licensing requirements, and can do so with their appropriate state offices such as state licensing boards, and licensing and regulatory affairs commissions.
Evaluate the Market
It’s important for homeowners to evaluate current and projected market conditions for the areas surrounding both their existing and new home to determine if they’re getting a good deal now and one that will remain a good deal for years to come. This means researching home prices, taxation rates and other factors such as schools, transportation issues and future building and community growth plans. There are many resources that can help homeowners in this process including city and county Web sites, local realtors’ sites, local newspaper archives and courthouse records.
Know the Deal on Financing
Homeowners need to consider the full cost of their new house—including added fees and interest—to avoid being taken in by what appears to be a low price. Also, while a builder can’t require that a buyer use a specific agent or lender to buy a house, they can require that the buyer use a specific agent or lender in order to receive the incentives associated with the trade-in. Using the builder’s preferred lender means the buyer might not be able to negotiate as good a deal or financing rate as if they had gone through someone else.
Is it Worth it to Wait?
Similar to trading in a car, trading in a house can be a quick way to sell, but the homeowner will most likely have to settle for less than their original or desired asking price, and this could literally mean tens of thousands of dollars less depending on market conditions. If the owner has the luxury of waiting, it could be more profitable to wait for an upturn in the market.
A lot of money is on the line when it comes to buying and selling a house and it’s best to get a second or even third pair of eyes on the contract before signing. A real estate attorney or housing counselor can help. The U.S. Department of Housing and Urban Development’s Web site provides a list of approved housing counselors at: http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
For more advice on buying a home, check our our book: BBB Insider’s Guide to Buying a Home – also available at your local bookstore.