Chain Breaks and how Developers can protect themselves
Whilst the country deals with a national crisis it’s inevitable that house buyers will stop a sale for various reasons and if the buyer is in a chain all parties are affected. It only takes one in the chain to cause the break and all the sales are affected so there is likely to be a large number of transactions cancelled.
This is massively frustrating for the Developer who has poured all their efforts into producing a new home product and all the challenges associated with it, then find themselves affected by the problems of not only their buyer but another 9 people in a chain – any of which could cause the chain to break which knocks on to cancel or postpone the new build sale completion.
Due to the pandemic there have been a significant number of conveyancing transactions either paused or stopped altogether. Even in cases where the transaction paused the parties circumstances may have changed causing the transaction to fail anyway.
There is a way for developers to protect their sale and remove their customer from a chain. They simply buy their customers house in part exchange.
- There is one linked transaction – the customer buys the developers plot and the developer buys the customers house at the same time.
- No other parties can create a chain – its an exclusive arrangement.
- The developer and the customer are in full control of the transaction.
- The completions occur at the same time so its a much less stressful moving experience for the customer.
This is very simple and effective way to sell new homes. There are significant benefits for the customer who doesn’t need to go through the usual process of house selling with viewings, estate agents and conveyancing chains involved. As a result the developer could be able to negotiate a discount on the customers sale price because of the benefit part exchange offers.
There are several clear benefits for the developer:
- Protected from a chain.
- More in control of the process.
- Assist sales – added value service will sell the plots quickly and effectively.
- Using the developers construction team and spare materials to renovate the customers house and flip for a quick sale / profit.
- Developer now makes a profit from 2 properties instead of 1.
All sounds great but the developer may well have fully committed financially and already borrowed to fund the development so cannot afford to buy their customers house. In addition the developer may be committed to the next project and plot sales cashflow is earmarked and cannot be used to buy customers houses.
This is where developer part exchange funding comes into play. It is a short term lending product that funds the developer to buy their customers house, additional funds can be provided to pay for the refurbishment / renovation costs. Most small to medium sized property developers cannot afford to buy a house for every house they sell so funding this solution is required and this is the service we provide at Specialist Property Finance.
This is short term lending product designed to enable the developer to quickly and effectively – buy, refurbish, add value, sell and redeem the loan. Some properties may not even need a refurbishment and can remarketed for sale immediately.
As we navigate our way out of lockdown more and more house movers may be looking towards newbuild and part exchange as a preferred option because of all the benefits it offers. So developers and also the estate agents that sell schemes for developers could benefit from having part exchange as part of the sales process and a thorough understanding of how this applies to the plots and the logistics of the solution for the customer.