Trading a Home for a Home, or a Boat, or a Plane, or ?
Every Realtor has heard a variation on the story of a buyer coming to them with an offer that goes beyond a creative financing proposal. Occasionally it is a straight trade for property elsewhere but on occasion the buyer might propose a trade for an airplane, a time share plus cash, and in at least one case I know of a race horse. While these deals can certainly be complex, they are becoming more common and may often be the only way a deal that is beneficial to both the buyer and seller can come together. With the increased difficulty in securing financing, well qualified buyers are looking at how they can convert existing assets into cash to make a purchase. With a trade, the buyer forgoes the step of liquidating the asset to create cash for the purchase, and offers the asset instead.
A proposed trade can be advantageous to both parties. In the best case scenario, the seller has a use for the asset. Even without a direct use, there are cases where a seller will prefer the offered asset over the real property they have for sale. For example, an income producing duplex in an urban center might be more attractive to a seller then the remote vacation home they are trying to sell, and rarely use. Even if the seller doesn’t intend to hold the duplex he may opt to accept it in trade based on an analysis that it will sell more quickly given its local market when compared to the market in which the vacation home is located.
Of course there are challenges with a trade deal. Some are obvious; what is the value of the proposed asset? And, some others less so; tax consequences? Is there enough cash in the deal to clear any outstanding loans against the property? If the buyer is offering an asset that is more valuable than the property offered by the seller, can the seller come up with the cash to cover the difference? And, if so, what about the loans if any on the subject property….might they be assumable?
And, A Real World Example of a Seller Willing to Entertain a Trade
My sellers of the property at 13 Long Ridge Trail are a prime example of a seller who would entertain a trade for their property. The sellers purchased the property a number of years ago while based on the east coast. They invested hundreds of thousands of dollars and worked closely with architect Eric Miller on plans and permits for a 5,000 square foot home with an attached 3 car garage and 1,700 square foot barn. The property is located within the Santa Lucia Preserve. An unmatched development where the homes are integrated within the 20,000 acre Preserve in which 95% of the native habitat is protected. It is also the home to an award winning Tom Fazio golf course.
The permits have been pulled to begin construction and Eric is excited to work with the new owners on modifying the plans for their personal tastes.
What Would They Consider in Trade?
This is a nearly ideal situation for a potential buyer hoping to build an estate home and looking to trade into the property. The sellers will entertain offers including real property (residential or income producing) as well as more exotic assets such as collectible cars or an airplane. The seller will entertain offers that include “assets plus cash” to arrive at a purchase price. The seller is a sophisticated and experienced finance officer who would also consider assets of greater value than the subject property with the seller contributing limited cash to close escrow.