The Wall Street Journal-20080131-I-ll Buy Your House If You Buy Mine

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I'll Buy Your House If You Buy Mine

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Eager to move closer to their grandchildren in Tennessee, retirees Allen and Wilma Sawtelle put their home in the Southwestern Nevada town of Pahrump up for sale in August. They got nowhere. "The market is just dead," says Mr. Sawtelle. At their open house, he says, "I think one guy came, and he'd been drinking."

Poking around the Internet for home-selling tips, Mr. Sawtelle, a 71-year-old former investigator for a law firm, discovered that anxious sellers like him are trying a new tactic: connecting with other sellers who might agree to "swap" -- or buy one another's property. The Sawtelles found a couple who were looking to move to Nevada, and whose house for sale was within driving distance of their grandchildren.

The concept of trading homes temporarily for vacations has long existed, but now it's being adapted to the slumping real-estate market as people, particularly in the Sunbelt and other slow spots, scout for ways to unshackle themselves from their property. Anecdotal evidence suggests the number of people doing this is still relatively small, but it has popped up from virtually nothing in recent years.

While some form of bartering has been going on since the beginning of time, experts say they aren't aware of house swapping being done in previous down housing markets. The technology and access to it didn't exist several decades ago. The current model is based on new technology that enables computerized matching of a large number of properties and owners' swap criteria.

Fans say swapping is suited to the current down market, where people are extra nervous about buying a new house before selling their old home.

Not everyone is a potential swap candidate, however. Swapping typically requires one party, or both, willing to settle for a new dwelling that is less than their ideal, either in amenities or exact locale. And searching for a swap is much like using a dating service: The odds can be good but the goods can be odd. Before finding his match, Mr. Sawtelle first had to deal with six unsuitable swap propositions, including one involving 450 hectares -- more than 1,000 acres -- in Costa Rica.

Experts say it's probably best not to get involved with someone who owes more money on their house than what it is worth -- because they could have a tough time getting financing. And the transaction itself isn't without challenges. OnlineHouseTrading.com recommends that both clients use one title company that knows not to complete the deal "until everyone signs off." Daniel Westbrook, the co-founder of the company says, "the scariest thing that could happen is that you buy someone else's house and they don't buy yours."

Both sides of a swap transaction typically close simultaneously -- taking away the risk of being saddled with two mortgages at once, or of having to borrow more after purchasing a new home because your old house didn't sell for as much as you thought it would. When swap partners meet directly online they also save on brokers' sales commissions -- usually 4% to 7% in most markets. If there are homes of unequal value, one buyer provides the cash or gets a mortgage to make up the difference experts say.

Mr. Sawtelle found his swap via a $19.95 listing on OnlineHouseTrading.com, one of at least six swap sites started in the past year. Four have started in just the past seven months, including OnlineHouseTrading.com, GoSwap.org, DaytonaHomeTrader.com and DomuSwap.com. Together the six sites have roughly 16,000 postings. At Craigslist.org, the popular ad site, the number of "home swap" listings -- which includes people trading homes temporarily for vacation -- jumped 56%, to 7,392 in the 12 months ending in December, the company says, and much of the growth came from people trying to permanently sell each other their homes.

Developers in the weak market are getting into the act, trying to unload new homes by offering to buy peoples' older, less expensive ones -- essentially taking trade-ins like car dealers. Developers say that they do have to then worry about selling the trade-in home, but it is more important for them to avoid getting stuck with a new subdivision of empty homes, which is bad for their image and their wallet.

Developer Florida Lifestyle Homes in Daytona Beach says it will buy homes of people who will "trade up" to a new home that has a value at least 20% greater than the one they're in. Patrick Sullivan, the owner of the company, says he has made 21 offers and completed eight trades since early 2007.

Some brokers who don't want to get cut out of the new trend or lose commissions are introducing their own swap strategies. Mapp Realty & Investment Co. in Sarasota, Fla., has launched a Web site where visitors can view a list of properties available for exchange.

Of the 1,919 houses listed on DomuSwap, 13% -- or 250 -- were listed by brokers. Some of them see this as a supplement to their other marketing efforts, since it opens up a new market of potential buyers. Others don't like the intrusion.

David Moskowitz, founder of DomuSwap.com, says "I have been seeing resistance from realtors. . . . . However, business and technology is moving in this direction."

Walter Molony, spokesman for the National Association of Realtors, says the industry has long experimented with all kinds of business models, and "embraces all kinds of ideas."

Within three days of listing their home in October, the Sawtelles were matched with Amy and Roy Farr, a young Georgia couple who needed to relocate to Southwestern Nevada for Ms. Farr's job with a carpet manufacturer. For a year, the Farrs had been trying to sell their house in Cartersville, Ga. -- which, it turned out, is an hour's drive across the border from the Sawtelles' grandchildren in Chattanooga.

Looking at photos, the Sawtelles liked the Farrs' house, particularly the pillars out front. "It looked like a little mansion," says Mr. Sawtelle. The Farrs traveled to Pahrump to see the Sawtelles' house. "It wasn't ideal," Mr. Farr says. It was about half the size of the Georgia house. But it was "cute," he says, and "we were just very motivated to do something."

On Nov. 30 in Pahrump, the couples held simultaneous closings, with the Farrs selling their house to the Sawtelles for $285,000, and buying the Sawtelles' house for $140,000. The Farrs walked away from the Georgia house with cash. The Farrs reckon they saved about $20,000 in brokerage commissions, while the Sawtelles calculate their savings at about 3%, or $4,100.

"We're tickled pink," Mr. Sawtelle reports from Georgia. But the Farrs weren't quite ready for the isolation in Pahrump. "You have to drive 60 miles over the mountain to get to things," says Mr. Farr. The Farrs now want to trade their new home for one in Las Vegas -- closer to their jobs and social activities.

Swaps can also work over shorter distances. Lorry Eible, who owns the Foxy Lady clothes boutique in Sarasota, Fla., had built a 4,000- square-foot Mediterranean-style home as a business venture in 2005, but couldn't sell it. "For two years, we didn't really have any legitimate offers," she says. In December, she added a few words to her "for sale" sign: "Will Consider Exchanges."

"I immediately started to get phone calls," she says. She got two offers, and accepted one from a neighbor who wanted to move up to a bigger house. He offered to sell Ms. Eible his smaller house -- plus a rental property. In a closing scheduled for tomorrow, Ms. Eible will sell her house for $1.6 million and buy the neighbors' property for about $1.2 million. She says she's not getting as much money as she'd hoped, but "what this did do is give us the ability to move on."