How-to Monday: House trading
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There's nothing like trying to sell a house in a down market to get one fantasizing about the what-ifs.
For instance: What if you could tap into the large pool of people who, just like you, would be in the market to buy if only they could sell? What if you could find someone with a place you want who in turn wants to buy your place?
Actually, you can. You can give it a try, anyway.
"It's a very viable alternative if it's a tough market, if you're literally unable to sell your home," says Danielle Babb, an author of real estate books, including Finding Foreclosures.
You can handle a trade more or less like any other home sale. You and your co-trader are just selling to and buying from each other.
It might be easier if each of you has a mortgage that's assumable, because then you can swap mortgages as well as houses. But Babb says there's no reason Person A can't get a new mortgage to buy a house from Person B, who gets a new mortgage for A's house.
I checked with Bank of America, and it said traders should coordinate with their lenders to close on both sales the same day. It also suggested using the same settlement agent.
"Make both contracts contingent upon one another," recommends Daniel Westbrook, chief executive of Tampa-based OnlineHouseTrading.com.
Westbrook co-founded the website about a year ago to help match up home traders. Roughly 47,000 homeowners have signed up, he says.
Westbrook says he expects to launch a reality television series about the trend -- which he calls "reciprocal selling" -- later this year. He got the idea for his site while working as a real estate agent. He kept running into coincidences, like the client from Michigan who had to move to Florida while another client had to move from Florida to Michigan.
"I thought, 'God, these people could buy each other's homes,'" he says.
Says Babb: "We see a lot of military jumping onto it."
The traded homes don't have to be the same price, by the way. The key is whether each party wants the other house and if each can qualify for a mortgage on that other house. You might need something bigger while your co-trader wants to downsize.
If you'd like to home-trade but owe more on your loan than the house is worth, Babb says, you'll have to see if your lender will do a "short sale" -- same as anyone contemplating a sale with negative equity. A lender approving a short sale allows the home to be sold for less than the mortgage balance.
Statistics on home trading are thin, so it's hard to say how many are doing it or how quickly people are finding takers. At last count, OnlineHouseTrading.com had about 720 Maryland homeowners looking to trade and about 540 people wanting to buy in the state.
Babb's suggestions, should you decide to jump on board:
--Choose a site with a flat fee, not one that charges you by the month. There's more incentive for a company to help you sell if you're not continuing to pay, she says.
--Send any deposits to an escrow company, not directly to your co-trader. And make sure the company is legit. "Some scammers are creating their own fake escrow companies just to get the cash," Babb says.
--Do your due diligence, just as you would with any sale. Get the house inspected and hire a title company to make sure there are no surprise liens on the property.
--Don't skip the walk-through of the house before settlement, even if it requires a special trip out of state. "I'm recommending the buyers do it themselves," Babb says.