Stumped home sellers look to make a trade

Blynda and Leonard Masters wanted to buy a bigger home in Jacksonville, Fla., so they could entertain more and host extended family. Like many would-be home buyers in this market, however, they faced an increasingly common financing problem: They couldn’t borrow to buy a new property until they sold their old one.

They listed their 2,600-square foot four-bedroom brick home for $425,000 in May 2008, but pulled it off the market after six months, figuring they’d wait for the market to improve and try again. But when they stumbled on an open house in December, they realized they’d found exactly what they wanted — a 3,900-square-foot waterfront property with hardwood floors, a swimming pool, boat lift and dock, home theater and five bedrooms for guests, for $699,000.

The Masters didn’t think they could buy the property since they hadn’t sold theirs. But the agent running the open house floated a radical proposition: The Masters could “swap” their house with the seller. That is, they and the seller could sell their houses to one another and schedule a near-simultaneous closing that would let both parties avoid financing complications. The agent had seen the Masters’ home when it was for sale and sensed that her downsizing client, Kathleen Jordan, would like the Masters’ smaller house.

Less than six weeks after the Masters first saw Jordan’s home, they became its owners — and vice versa.

“Our agents said that they couldn’t believe this worked out,” Blynda Masters says. “But we each had a ready-made buyer, so we both knew we could close on our homes.”

She credited God with helping to bring the deal to fruition against long odds, saying she and her husband prayed about it and "and asked God to open the door if that is what He wanted us to do, and we felt that the door was open."

Small corner of the market
As so-called “permanent swaps” go, the deal between the Masters and Jordan was uncharacteristically smooth. The Masters’ agents, Dennis and Kathy Lang of Prudential Network Realty in Jacksonville, had warned them that many swaps fail. Indeed, Dennis Lang said he’d worked on another swap in 2008 that fell apart. But with homes sitting on the market in many parts of Jacksonville for 100 to 120 days throughout much of last year, Lang says the swift transaction could be a sign that sellers are willing to get creative despite a credit crunch that has toughened lending standards.

David Friedman / msnbc.com Kathy Jordan traded for the Masters’ home.

The National Association of Realtors doesn’t track swaps in its annual home sales survey, and the association estimates that swaps are a very small corner of the market.

“We haven’t seen this happen on a very big scale,” says association spokeswoman Stephanie Singer. “It can be a very complex transaction, especially if you’re crossing state lines.”

It’s easier to locate a would-be swapper than to find one who has completed a deal, judging from the number of “permanent swap” listings on Craig’s List or swap facilitator sites such as GoSwap.org, OnlineHouseTrading.com, Domuswap.com, or MK HomeSwap.

Sergei Naumov, founder of GoSwap.org, launched his international swap site from Florida in late 2006. As of December 2007, his site had 90 active listings; one year later, it boasted 3,000.

Naumov confirms that hard-hit markets in Florida, the Southeast and California provide the most swap listings. That suggests sellers from distressed regions may see swapping as a tool that could help them sidestep the complications of marketing a property in a declining market. Some 20 percent of GoSwap’s listings indicate the seller is willing to move to almost any location, Naumov says.

With home values in flux, and tighter lending standards, it’s hard for many sellers to gauge how long they’d need to market their home — and how deeply they’d have to drop their prices. Unlike in healthier markets, few sellers can go ahead and buy the home they want and finance two mortgages while they wait for their original place to sell.

Thinking beyond the MLS
James Quach is marketing his loft in Denver, Colo., as both a permanent swap and as a listing with his local multiple listing service via a discount broker. Because Quach works in a telecom job that allows for telecommuting, his goal is to take advantage of that freedom and move to a ski community. He has valued his two-bedroom condo at $500,000 and plans to buy a house big enough for him and his dog.

Quach said he’s interested in a swap for a few reasons. For starters, his home’s price category may mean prospective buyers might need a jumbo mortgage. A swap might allow buyers to use their past equity as a down payment on his place. In addition, he’s dealt with some real estate agents who he thinks haven’t properly valued his home. One agent developed a price for Quach’s condo based on a foreclosure in his building, even though his sale wasn't a foreclosure sale.

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