As spring selling season gets under way, some homeowners are opting for an unconventional route: house swapping. Even as the housing market defrosts this spring, sellers are on the lookout for creative ways to minimize their costs. Swapping offers several bottom-line benefits: there are few to no agents’ fees, sellers can minimize their tax burden, and it’s a way to leverage property that may be otherwise difficult to sell. On the downside, swappers face fewer choices and have to be prepared to finance the difference in property value if necessary.
Over the last few years, a handful of websites have sprung up to support swappers, including GoSwap.org, OnlineHouseTrading.com and DomuSwap.com. Craigslist operates a whole category for home trades. The small boom in swap and barter sites took hold at the height of the financial crisis two years ago and shows no sign of waning.
Swapping the Ocean for the Desert
Sergei Naumov, founder of GoSwap, says there are more than 30,000 listings on his website, most of which are concentrated in the southeastern states. Founded in 2006, the site started picking up steam in 2008 and traffic has yet to fall. He estimates the number of successful swaps to be in the thousands.
One of those success stories is Pam Farley, 58, who used GoSwap to trade her three-bedroom home in Osprey, Fla., for an adobe house near Santa Fe., NM. In late 2008, she and her husband were empty nesters, ready to move from their Florida home after 12 happy years. Their timing couldn’t have been worse. The housing crisis was rippling across the state and qualified buyers were scarce. After sitting on their for-sale-by-owner listing for more than year, Farley decided to investigate a permanent house trade.
Gallery: See Inside a Pair of Swapped Houses
“I listed on several swap sites, and every day I had someone emailing me,” she says. “We made adventures out of visiting the potential houses. We went to New England, Idaho, and Oregon. It was cool because we got to see interesting parts of country.”
Farley, a painter, knew she wanted to move to the southwest to work on her craft and kept returning to a listing in New Mexico. Willingness try a new location is common among swappers, says Naumov. “A lot of the swappers tend to be older. They are not as bound by where they are, and their criteria is very open,” he says. “Many people will consider a swap in any state.”
Controlling the Process
Bauwens, who has a degree in marine biology, is also open to what the swap universe might send her way. Part of her desire to move away from her Montana farm, where she has lived for 10 years, is to pursue better job opportunities in marine science. Her other motivation is simply to change the scenery.
“I turned 40 last summer and I am in the mindset that life is too short to not be where you want to be,” she says. “I am excited to move and wipe the slate clean.”
With bartering as a way of life among horse trainers, Bauwens views her swap as a natural step. By advertising her farm as a swap on Craigslist rather than listing it as for sale, she avoids paying a 6-8% broker’s commission and gets to keep the details of the transaction to herself.
“When you list on the MLS, people expect you to lower the prices,” she says about her farm, which was appraised for around $350,000 several years ago. “Being in a small town, once it’s listed, people start talking.”
Making the Deal
After mutual visits to New Mexico and Florida, Farley and her home swapper quickly agreed on a deal. The next step, drawing up the offer-to-purchase contracts, was at the heart of the swap.
Even as the word “swap” conjures the days of yore, the deal is in fact two simultaneous sales. Ideally, both transactions close on the same day to prevent one owner from holding two mortgages or properties. For primary residences of equal value that are swapped, there is no taxable gain. If there is a difference in price, sellers can exclude capital gains up to $250,000 for a single taxpayer and $500,000 for married couples. Swappers of investment properties or businesses may defer taxes through section 1031 of the IRS code.
Farley’s deal took several weeks and many drafts of the contracts faxed back and forth. After a wrinkle in securing financing, she was able to get a loan with a local bank in New Mexico and close on the swap in 30 days. “When we were done, it was fair and good,” she says. “We protected each other.”