Tuesday, June 5, 2007

Trade in your house?

On the surface, this looks like a pretty good deal. Instead of the tradition of buying a new home while trying to sell off your old one, some developers are offering deals to trade in their existing homes for a new one. The catch is that the new one needs to be 20% higher in price than the one you're giving them. Of course we'll also assume you need to roll over any existing mortgage principle you have, and you are going to have to step up to a more expensive home. Depending on how long you've had your first mortgage, you may or may not be looking at lower monthly payments.

They also offer you around 95% of the appraised value of your home. Not bad when you consider a real estate agent would probably take 6% anyway.

Apparently the way the developer makes his money is by flipping it (trendy term for upgrading a house and selling it for more than you bought it for). Depending on your situation, this might be a good deal, especially if you were already planning on buying a new, more expensive home.

I wonder how much risk developers are willing to take? They are motivated to offer this deal because homeowners are having difficulty selling in the recent housing market, so how will that eat into the developer's profit?

Unfortunately, they don't give anywhere to read the fine print.