Wondering if you can exchange your old apartment for a new one? Today we will tell you in detail how the system of trade-in in real estate works, how housing is switched, how an apartment is valued in trade-in, and what kind of real estate is suitable for exchange.

What is “trade-in” in real estate, and how does this system work?

In real estate, “trade-in” refers to a transaction in which a buyer exchanges their current property for a new one. This process involves the simultaneous sale and purchase of a property, often with the assistance of a real estate agent or broker.

There are several ways to arrange such an exchange. In one common option, both parties agree to exchange the property at an agreed-upon value. This value may be based on the market value of the property or may be negotiated between the parties.

Another way to set up a trade-in is for one party to agree to pay the other party the difference between the two properties' values.

It is important to ensure that all the necessary documents are properly drawn up, including contracts, transfers of title, and so on—in short, it is important to resolve all legal issues properly.

What are the benefits of Trade in?

Trade-in deals can offer several benefits to homeowners. Here are some of them:

  • Simplified process. The trade-in procedure helps save time for those involved in the purchase and sale because, essentially, the two transactions are combined into one coordinated exchange.
  • Flexibility in negotiations. During a trade-in, the parties involved communicate directly and can discuss pricing, terms, and other conditions among themselves. This flexibility allows the best solutions to resolve discrepancies in property values, repairs, or other aspects of the exchange.
  • Fixing the value of the home being purchased. As long as the reservation contract is in effect, the buyer can be sure that the new apartment will not increase in price and that he or she will not incur additional costs.

What are the disadvantages of the trade-in process?

Of course, in addition to the benefits, this process has its own drawbacks:

  • Limited choice of exchange partners. The pool of potential partners may be limited, as finding a home that matches your preferences is not the easiest task.
  • Difficulties in agreeing on timelines. Difficulties can arise at the timing stage, as both parties must be ready to complete the transaction at the same time. If one party encounters delays or complications, it can disrupt the entire process.
  • Understatement of the price of the apartment being sold. In order to speed up the sales process and have time to buy a new home at a fixed cost, clients are often forced to sell an apartment 10-15% cheaper than the market price.

Also, if you are exchanging secondary housing for a new one that is still under construction, you will need to move out of the old apartment after the sale and find a place to live during construction.

What kind of real estate is suitable for a Trade in exchange?

Theoretically, any type of real estate can be considered for a trade-in transaction, including residential, commercial, and land. However, the suitability of a property for trade-in depends on a variety of factors, including market conditions, demand for real estate, and the preferences of potential buyers.

Exchange transactions with commercial real estate are less common than with residential real estate, and it generally takes longer to sell and buy such properties.

Vacant land or building lots may also be suitable for exchange. Developers or individuals interested in acquiring land may consider exchanging their current property as part of the purchase of a new parcel of land.

Properties that are not suitable for exchange include:

  • properties in need of major renovations;
  • properties that are in a declining market;
  • properties that have a history of problems.

What does the trade-in process in real estate look like, step by step?

Here are the steps that a trade-in transaction usually involves:

1. Finding an exchange partner. A buyer and seller interested in a trade-in transaction find each other and express a mutual interest in exchanging their properties. This can happen through personal connections, real estate agents, or online platforms.

2. Real estate appraisal. Both parties have their properties appraised to determine their market value.

3. Negotiations. The buyer and seller negotiate the terms of the trade-in transaction: the value of the property, the terms, and conditions of the exchange, etc.

4. Obtaining approval for a mortgage loan (if required). If any of the parties to the transaction require a mortgage, you need to anticipate it and get approval for such funding in time.

5. Signing the contract and closing the deal. After agreeing upon terms, a contract of sale is drawn up where the details of the trade-in transaction are set forth. The contract is signed by both parties, and the process of closing the deal begins.

6. Simultaneous exchange. A trade-in is usually characterized as a simultaneous exchange in which the properties are transferred on the same day. This ensures a seamless transfer of ownership for both properties.

It should be noted that the specific steps and processes involved in a trade-in may vary depending on local real estate practices, regulations, and the preferences of the parties involved.

How is an apartment appraised in a trade-in?

What does the appraiser do when valuing an apartment for a trade-in:

  • Comparative Market Analysis (CMA). An appraiser or real estate agent will conduct a comparative market analysis to estimate the value of the apartment. He will compare the apartment to similar properties in the local market that have recently sold or are in the process of selling.
  • Market Conditions. Current real estate market conditions will be considered, including supply and demand dynamics, local trends, and economic factors that may affect property values.
  • Rental income (if applicable). If the apartment is a rental income investment property, the appraiser may consider the rental history and potential income stream.
  • Amenities and features of the property. The appraiser will evaluate the apartment's unique features and amenities: layout, number of bedrooms and bathrooms, availability of parking, views, access to amenities such as pools or fitness centers, and other factors that may affect the value of the apartment.

Based on these factors, the appraiser will provide an estimate of the market value of the apartment. This appraisal will serve as the basis for determining the trade-in value and negotiating a deal with the other party.

Examples of how real estate trade-ins work in different countries

Real estate trade-in deals can vary, depending on the country. Here are a few examples:

United States. In the United States, trade-ins are very common, unlike in other countries. In the U.S., trade-in deals are usually with homeowners who want to sell their current property and use the proceeds to buy a new property. Real estate agents or brokers play a crucial role in these transactions, coordinating the simultaneous closing of the sale and purchase.

Germany. In Germany, trade-in deals, known as “Tauschgeschäft,” are less common than traditional real estate sales. Typically, homeowners sell their existing property on the open market and then use the proceeds to purchase a new property. However, there may be cases where individuals negotiate a direct exchange of real estate with another party, bypassing the open market.

Spain. In Spain, trade-in transactions, known as “permuta inmobiliaria”, may be carried out through direct negotiation or with the participation of real estate agents or brokers. As a rule, the transaction is executed through a notary public, which ensures compliance with legal regulations and the transfer of ownership rights.

Russia. In Russia, trade-in transactions in real estate are not widespread. Today, this service is usually offered only by large developers, who cooperate with intermediaries or have their own departments that search for buyers for secondary housing. It is important to note that, in most cases, this scheme is applicable only within a single region or a particular city.

Kazakhstan. In this country, there is an option whereby the buyer transfers his existing apartment to the developer, pays the additional amount of the difference, and gets a new one in an apartment complex. The developer, in turn, sells the client's old apartment through its realtor partners. This scheme is applicable only to housing under construction, and it is currently impossible to purchase ready-made housing in Kazakhstan under this scheme. In addition, the trade-in only works in the cities of Nur-Sultan and Almaty. However, you can buy a new dwelling in the cities of Atyrau, Aktau, and Shymkent by selling an apartment in the megalopolises.

Keep in mind that specifics of trade-in transactions may vary in each country, so you should consult with local real estate specialists or seek legal assistance.