Trading Spaces: Buyers, Sellers Swap Houses As Solution In Sluggish Market – Nashville Business Journal – Nashville,TN,USA
Nashville Business Journal – by Jenny Burns Staff Writer
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Friday, April 3, 2009
Nick and Leigh Ann Nail were relocating to Nashville from Columbus, Ohio, for a job transfer and needed to find a home here. But they also needed to sell their Ohio home, a transaction that’s become much harder in today’s real estate market.
They found a house they loved in Green Hills. And they noticed the office was decked out in Ohio State University memorabilia, and it turned out the sellers were moving to Ohio.
The Nails wondered, “Maybe they’ll buy our house if we buy theirs.”
And they did.
But the deal didn’t happen until three months after the Nails’ real estate agent offered a house trade. When the Nashville-turned-Columbus couple didn’t sell their Green Hills home in that time, they agreed to the switch.
“We were pleasantly surprised. It was an extremely easy closing and inspection. Both parties were extremely respectful to the other,” Nick Nail says.
Although the Nails still went a more traditional route with real estate agents, they had become part of a growing trend — permanent house swapping.
A proliferation of Web sites have popped up in the past two years aimed at helping desperate homeowners trade their digs, including Goswap.org, onlinehousetrading.com and Pad4Pad.com. Even the popular Craigslist has become a venue for house trades.
In the case of the Nails, each couple bought the other’s home for the list price, which was $209,900 in Columbus and $397,000 in Green Hills.
“You’ve got to get creative these days,” says Barbara Decker, the Crye-Leike real estate agent who represented the Nails on the buyer’s side.
The transaction wasn’t so easy for the four real estate agents involved.
“We had to decide who was going to make the first offer. The other offer had to come in. You had to make sure all the contracts were the same and all the inspections went together,” Decker says. “We really tried to make it so it was fair for each couple. We didn’t want to close on one and then have something happen to the other.”
And the mortgage company was dubious about a house trade, so the buyers and agents had to sign statements acknowledgling that the two parties are not family members and did not know each other.
But it worked.
Gail Greil, an agent with Zeitlin & Co. who listed the Green Hills home, says the Nails’ home was smaller than what her clients wanted, but they didn’t want to continue to pay the mortgage and upkeep on their former home.
“They made it work because they needed to get on with their life,” she says. “It was absolutely amazing that it worked out.”
Nick Nail says both houses were getting plenty of showings, but no one was willing to step out and buy. He knew if he didn’t sell his Ohio home by December, it would be spring before he’d get any bites. The trade happened on Oct. 30.
“It was just difficult to find the right buyer at the right price,” he says.
From the perspective of mortgage lenders, house trade borrowers must have a bona fide appraisal of the property’s current market value and show they are not family members, says Dianne Payne, regional production manager for the mortgage division at Magna Bank. If they are related, there are reductions in the amount of loan they can get, she says.
“Everybody today is trying to think outside the box. It creates a market for non-traditional transactions,” Payne says.
The type of financing the borrower is getting dictates how much of the trade equity can be used for the downpayment, she says.
Payne also is seeing builders buy the previous homes of their buyers to get a deal done. They can often take on a lower mortgage than the current construction loan they have on a new home and use the older property for rental income.
With the struggling housing market, Craigslist is loaded with sellers trying to swap their homes. A $420,000 lakehouse homeowner in Paris, Ill., wants to trade for a home in Nashville.
A homeowner in Phoenix wants to trade a $750,000 five-bedroom home for land, farm or a four-bedroom, two-bath home in Franklin.
And Matthew Wilson, a partner in Gateway Construction Co. in Brentwood, is getting married, so he wants to trade his $269,900 condo in West End, and possibly his fiance’s Brentwood townhouse, for a house in the Green Hills, Belle Meade or West End areas. He had read about house swapping and thought there might be buyers out there who have more house than they can afford and would be willing to switch with him. His condo has been on the market for five months but had little interest.
His Craigslist posting has gotten one interested buyer so far, a divorced woman in Belle Meade who wants to downsize from her home. Wilson says her home is a little out of his price range, but he’s considering it.
Then there’s Wayne Whitworth, a self-employed appraiser whose Craigslist ad says he wants to trade his place in the country in Perry County for a Nashville condo. He and his wife live in Woodlawn and rent the Perry County home, but would like a condo in Nashville to retire to down the road.
He’s bought real estate through a 1031 exchange in the past and thought house trading might work this time. He hasn’t gotten any takers yet from his ad.
Real estate agents say house swaps are extremely rare. But Sergei Naumov, who created Florida-based GoSwap.org in late 2006, says they’re happening around the country.
Naumov’s listings have grown from 90 in December 2007 to 11,000 today. Sellers can list their home for $30 for a year or for free for three months if they refer five friends to GoSwap.org. There are no commissions or other fees.
Naumov says increased media coverage of house trading and the growing desperation of sellers has boosted the site’s traffic. He has about 100 listings in Tennessee, compared to 700 in Florida.
The benefits of home swapping, he says, are two-fold: Each party buys the other’s home at its appraised value so sellers retain their equity and aren’t forced to make drastic price cuts. And it allows a family to buy their next home.
“Most people in this market are not able to qualify (to buy) with an unsold home,” Naumov says. “They cannot buy because they would have to qualify for two mortgage payments.”
Naumov says house trading is still foreign to mortgage companies, as the Nails experienced, and he suggests both parties get a real estate lawyer to make sure contracts are worded properly.
As for the Nails, the timing worked out better than expected. Just after trading their home, the couple found out Leigh Ann was pregnant.
“Leigh Ann and I actually chalk it up to prayer and divine intervention,” Nick Nail says.