House Swapping: Trading Spaces Forever

In the film The Holiday, two women on opposite sides of the world decide to trade houses over the Christmas holidays. Trading homes for vacation purposes is not …

In the film The Holiday, two women on opposite sides of the world decide to trade houses over the Christmas holidays. Trading homes for vacation purposes is not a new idea, but what if the swap was permanent? Investors looking to sell a house could consider a swap if they are interested in purchasing new property while receiving market value for their own.

An estimated 16,000 Americans are in the market to trade their homes, according to ConsumerAffairs.com. That’s not many in the grand scheme of things—there were over four million homes on the market at the end of 2007—but the number is steadily growing as more people get fed up with the lack of buyers.

And that growth is significant. “At Craigslist.org, the popular ad site, the number of ‘home swap’ listings—which includes people trading homes temporarily for vacation—jumped 56 percent, to 7,392 in the 12 months ending in December, the company says, and much of the growth came from people trying to permanently sell each other their homes,” according to The Wall Street Journal.

In addition to Craigslist, a number of websites dedicated to house swapping have sprung up in response to the rising demand, offering sellers a place to list their home and fill out criteria in hopes of finding a match.

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One such site is OnlineHouseTrading.com, which was founded last year. “We have a couple of small investors, and one of them moved from Colorado to Florida and bought a house from somebody who was moving from Florida to Colorado,” Brian Stroka, co-founder of OnlineHouseTrading.com, said. In this case there wasn’t a swap, but the situation sparked the idea of what could be. Now there are approximately 14,000 properties listed in the website’s database, according to Stroka.

House trading could be an excellent opportunity for investors looking to upgrade or transfer their holdings to a different area. The properties being exchanged do not necessarily need to be of equal value, since cash or mortgages can cover the difference, and trying to exchange a smaller home for a larger one is not necessarily any harder than the other way around; in fact, it may be easier. Now that the bubble has burst, more people are in the market to downgrade than were while the market was booming, according to Stroka.

Trading homes may not be suited to all investors’ needs because it requires some degree of flexibility. The odds of finding the ideal investment home are slim when limited only to those who are interested in trading. The property one finds may not be in precisely the right location or have the desired number of bedrooms. But investors may ultimately decide it’s worth the inconvenience, and are more likely to be concerned with just the numbers for investment properties than those trading for primary residences.

In a house swap, first and foremost, one’s own property gets sold. That might be incentive enough for some, particularly since it is likely to get near market value when sold as part of a trade. Sellers can also save on realtor commissions when they find one another directly, which can amount to a savings between 4 and 7 percent, according to The Wall Street Journal. Sellers and buyers can still opt to use a realtor if they prefer the peace of mind.

“We don’t try to deter people from using realtors, really. I think they still have a place,” Stroka said. “They definitely make sure everything’s on the up-and-up.”

There are some important things investors should bear in mind when making a trade. Both deals should close simultaneously, or one seller could wind up stuck with two mortgages. It is recommended that both parties use the same title company and give instructions not to close the deal until everyone has agreed. Buyers and sellers should avoid trading with someone who owes more than the house is worth, because this person could have trouble getting a new mortgage, according to OnlineHouseTrading.com. Investors who are trading up could also potentially utilize a 1031 exchange.

If nothing else, house swapping may pump some new life into a gasping market simply by keeping things moving. “In general we feel like we can really help turn this crisis around. It’s the first time in history that this type of technology has been able to help in a market like this,” Stroka said, regarding online property trading databases.

Investors interested in trading properties have several resources to which they can turn. In addition to OnlineHouseTrading.com, other home trading databases offer the opportunity to list properties for a nominal fee. These websites include DaytonaHomeTrader.com, DomuSwap.com and GoSwap.org. And, as mentioned earlier, Craigslist.org has a growing number of house swap listings for no cost whatsoever.

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