Consider a home swap in a tough market

After spending two years trying to sell her Florida home, Pam Farley decided it was time for a new strategy. She quit looking for a buyer and went after sellers who were interested in trading homes. A few months later, she signed the closing documents and swapped her house in Sarasota for a house in New Mexico.

"Nobody has to feel stuck if they can't sell their homes," she says. "There are a lot of options if you are willing to trade."

Since the housing market tanked, homeowners wishing to upgrade to bigger homes, downsize or relocate have become more open to the idea of making a home swap, says CEO Sergei Naumov of GoSwap.org.

The idea of a permanent home swap, although more popular than a few years ago, isn't an option that most sellers consider.

But they should, Farley says. "Everything is a little scary when it's unknown, but it was the best decision we ever made," she says. "When we had our house on the market (for sale), we kept having to reduce the price until I finally said, 'This isn't working, and it's getting scary.' And that's when I found various house-swap sites."

A home swap is not as complicated as it first sounds, says Naumov.

"It's just that instead of one transaction you have two transactions happening at the same time -- one selling your house and a second buying the other party's house," he says.

The key is to spell out in the contracts that the closings should take place simultaneously, says Rafael Castellanos, an attorney and managing director at Expert Title Insurance in New York.

The swappers sign separate purchase and sale agreements for each of the houses being traded. The contracts spell out the price of each property. If one home is more valuable than the other, the buyer of the more expensive house pays the seller for the difference at closing.

If either of the properties being traded has an outstanding mortgage, the existing lender is paid at closing, just as in a traditional sale. And as with any traditional purchase, the buyer in a house swap can get a mortgage to pay for the new house.

There are many advantages to trading versus selling, says Bob Boole, who wants to trade his town house in Treasure Island, Fla., for a home in North Carolina.

"For one, I don't have to deal with a bunch of people walking through the house giving me silly offers," Boole says.

If no real estate agent is involved in the trade, the buyer and sellers save on real estate commissions.

It's also easier to coordinate the moving process when you do a trade because the moves can occur simultaneously. Both seller and buyer can save the trouble of putting furniture into storage.

Doing a home swap isn't for everyone. As with a standard home sale, if you owe more on your mortgage than your house is worth, the only way a home swap would work is if you pay the lender the difference of whatever you sell the house for and what is owed on the mortgage. It also could work if the lender accepts a short sale.

While traders sometimes agree to swap homes of similar values and call it even, there is often additional money or assets such as cars and boats included in the closing, says Naumov.

"The trade has to be even," says Bruce Knapp, who has traded a couple of properties including a condo in Pensacola, Fla., plus some cash and a car, for a lot in Georgia.

That's why it's important for both parties to order fresh appraisals for the homes being traded.

If you decide to go for a home swap, the more moving parts you have in the deal, the more you should consider hiring a lawyer to help draft the contract, Castellanos says. Traders "should protect their rights as any other buyer would."