Can't sell your house in this market? Trade it.
Permanent home swaps, while complex arrangements, are gaining momentum – 8,000 a month by one estimate.
Joseph Solans is playing a kind of real-life Monopoly.
Stuck with multiple properties he would like to sell in a market in which next to nothing is selling, the Groton, Mass., developer has joined a small but growing number of people looking to do the next best thing: Trade one property for another – permanently.
Mr. Solans plans to close a deal on his first trade this week. He's promising to build a house on a lot he owns in Ashburnham, Mass., in exchange for a house in Palm Coast, Fla., and then trade that house for a commercial property in Fitchburg, Mass. He's also in talks to trade another plot of land in Massachusetts for a one-acre plot in Hawaii.
Permanent property swaps like the ones Solans is trying are not easy, often requiring two sellers with comparable properties, perfect timing, and a resolution of any mortgages tied to those assets.
Still, the scope of potential swappers is small. Approximately 4 million homes are listed for sale on Realtor.com, according to Walter Molony, spokesman for the National Association of Realtors (NAR). That figure is sizably larger than the roughly 12,000-plus listings last November for permanent and temporary house swaps on Craigslist. In addition, permanent house-swapping websites such as DomuSwap.com listed about 7,000 prospective trades this month, while BestHouseSwap.com contained more than 2,000 active listings, according to the sites' creators.
"We know that less than 2 percent of homes are sold using some sort of trading mechanism," says Ms. Babb. Still she views permanent house swaps as "a very viable alternative right now."
Four homes for one
Permanent house swapping has gained interest over the past year among investors, retirees, military families, and people moving because of job transfers, Babb says. Swaps have also become attractive in states hit hard by the real estate slump, including Florida, California, Arizona, and Nevada.
Jerry Stussman has participated in three successful property swaps since 2003. A semiretired reverse-mortgage specialist, he now lives in a home in Westlake Village, Calif., that he swapped for four houses in Thousand Oaks, Calif., in 2004.
In a another trade, he spotted Sherry Crosslin's house in Hampton, Va., listed on DomuSwap. Mr. Stussman saw her home as a potential vacation spot. Ms. Crosslin decided to trade her home for another home Stussman owned in Thousand Oaks. Within nine weeks of finding each other, they closed the deal.
"[House-swapping] accomplished what I need," Stussman says. "It's just an alternative."
Sorting out mortgages
For most swappers, the exchange is rarely an even trade. Typically, swappers are trying to trade unequal properties with or without mortgages. "Basically, it proceeds like two sales without a real estate agent involved," says Babb.
This means that most swappers will have to apply for a new mortgage and come up with their own down payment.
But there are steps that can make the trade easier. Swappers might elect to use the same title company, for example. To avoid paying on two mortgages, both swappers should close on the same date, says Brian Stroka, president of OnlineHouseTrading.com.
They can also take equity that they have from their current house and use it as a down payment on the property they want to buy. If a swapper doesn't have equity, they will need to apply for a loan or use savings for the down payment. In some situations, if both parties' loans are assumable, swappers can take over the other person's mortgage, says Babb.
Sometimes these deals go bad, however. In 2007, Amy and Roy Farr successfully swapped their home in Cartersville, Ga., for a house in Pahrump, Nev. Ms. Farr says she left behind her "dream house" after receiving a job transfer.
"In this case, it really was our only option. We weren't getting anywhere trying to sell our house in Georgia either," she says.
The swap worked fine at first, but now, the Farrs have had to move out of their home because it's facing foreclosure. "[We] picked a house in a bad location," she says. "The market was horrible. It is horrible.... At the moment, my husband and I don't want to buy a house for a very long time."
Sometimes, finding the right property can be tricky. It took Allen Sawtelle, a retired investigator for a law firm, six months and a few phony deals – one swapper wanted to trade 700 acres of land in Costa Rica for his house in Pahrump, Nev. – before he found the right match.
"I said 'send me the deed,' and I never heard from him again," he says.
Before swapping, "You need to do your due diligence," says Mr. Molony with the NAR. "Even though the owners of these properties may be completely open and candid about the property, there can still be hidden defects."
Experts advise potential swappers to conduct an appraisal and inspection, view the property in person, and in some cases hire a real estate agent or attorney to draw up legal documents.
Mr. Sawtelle and his wife, Wilma, wanted to move closer to family in Chattanooga, Tenn. After attempting to sell their home through a real estate agent for six months with no results, they wound up trading with the Farrs.
Sawtelle had swapped houses before in the 1990s after placing an advertisement in the Los Angeles Times.
"It certainly was a very small component of the market back then, but now with this Internet stuff, it's really bounded along," he says.
Websites have arisen to serve as matchmakers for people seeking permanent swaps. DomuSwap, launched in 2007, lets users post a free listing. OnlineHouseTrading, which lists over 50,000 trading profiles, requires a $29.95 fee for each listing. A handful of other websites – GoSwap.org, Pad4Pad.com, and BestHouseSwap – have launched over the past three years, but their success rate is unclear because their creators say it's difficult to track swaps.
Swappers have also turned to Craigslist, which has seen its listings for permanent and temporary house swaps increase by 70 percent over the past year, according to spokesperson Susan MacTavish Best.
But swappers should proceed on these websites with caution. Babb notes that some real estate agents will list homes on the sites for an undisclosed commission. But, "most people out there are usually legitimately selling their homes," she says.
In a down real estate market, permanent swaps can be financially advantageous. Stussman estimates that he saved between $20,000 and $30,000 on real estate agent fees by swapping.
In her 2006 book "Commissions at Risk," Ms. Babb predicts that increased Internet usage will lead to the decline of 2 million real estate careers in 10 years. Websites such as Zillow.com and Trulia.com now are providing homeowners with real estate information once reserved for agents.
Already some real estate agents are leaving the industry entirely. "It's mostly because of economic pressure," Babb says.
Though a small niche market, house trading may have a negative effect on agents, Babb says.
"In a market that's so tight ... sellers are not going to want to pay an extra 6 to 10 percent of the sales price to someone if they can just spend an hour a day posting things online. So I do think it's going to hurt the agents in the long run, but it's going to save consumers ... because over time it's going to eliminate the middleman," she says.
Sometimes swappers will hire an agent for a small, flat fee, though Babb says it's not necessary to hire one. "You can definitely do this by yourself."
With one successful swap under his belt, Solans, the Massachusetts developer, thinks the future for such swaps looks bright.
"House swapping is a new avenue to communicate, to market yourself, your services – and it's exploding," he says.