Monday, January 19, 2009

Swapping Your House

Are you having trouble selling your house?

The real estate market has slowed to a crawl and its probably going to continue being slow into 2010. That creates a problem for people who have to move now. This could be because of a job change, retirement, health issues, or just wanting to be closer to family and friends. Houses sell now but only at aggressive prices (translation: less than you want to sell it for).
Here’s a possible solution: how about trading houses with someone in a similar situation? People are moving all over the country. Maybe someone in sunny Florida wants to move to Buxton, Maine. They could trade houses with a resident of Maine who wants to move to Florida. That’s right, swap houses permanently.

How would you go about this? Thank heavens for the Internet. Go to Google and search on "Swapping Homes". This should result in 1.5 million links. That should keep you busy for a while. They represent all sorts of opportunities. There has been a thriving vacation swap presence for years. That is when you trade your house for a week for someone else’s house for a week and both of you have inexpensive vacations. The market has expanded to sites that promote house trades where you "sell" your house and get paid for it with another house. These sites have boomed since the dramatic drop in real estate activity.

Once you have located a desirable property, you need to treat the transaction like a purchase and sale. A swap is more complicated than a sale. A direct value for value swap is rare so haggle over the value of both houses. A cash payment usually is necessary to even out the values. Have the house inspected and hire a lawyer to do the legal work to reduce the chance of a problem. You can even hire a real estate agent to help.

Swapping can have some tax complications. When you swap houses you must deal with the tax consequences as if it were a sale. Generally this is not a problem. You only pay tax if the gain exceeds $250,000 if you are single or $500,000 if you are married. In this market, few people will exceed this threshold. You also must have owned the house for more than two years. Most people will not have to pay any tax on the transaction.

Remember this is not a do-it-yourself proposition. Enlist help from real estate, legal, and tax professionals who are familiar with the process.

Check out this link to Smart Money for some pitfalls that you might encounter:

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