Home Trade-in Programs: How to buy a house before you sell yours

Andrew Whytock

By 

Andrew Whytock

June 24th, 2021
Updated June 24th, 2021

SHARE

How it works | Pros & cons | Costs | Popular programs

🔑 Key takeaways:
  • If you use a trade-in service, you can buy your new home and move before your old one sells.
  • Home trade-in programs solve two common problems: (1) they help people to avoid paying two mortgages at once, and (2) they make offers more competitive by turning them into all-cash offers.
  • Companies that provide home trade-in services qualify buyers by assessing the equity that they have in their current home.

With most home trade-in services, you can actually purchase and move into your new home before you sell your old one. This helps you to avoid paying two mortgages at once and removes any financing contingencies from your offer on a new house.

Home trade-in programs allow buyers to leverage the equity that they have in their current home to buy a new home. Typically, trade-in services use their cash to purchase your new home, and then you pay them back once your old home sells.

This effectively turns any offer that you make into a cash offer, which can be very appealing to sellers.

💵 How much does it cost to use a trade-in service?
Trade-in providers charge a fee, which they often call a service fee or convenience fee. The fee is usually a percentage of the old home's sale price. However, buyers and sellers usually still need to contribute to the closing costs that would be associated with a normal transaction.

Alternatively, you could work with a top-agent for a flat fee and save money when you sell your home.

How do home trade-in programs work?

The specifics of how each company organizes their trade-in service may differ, but generally speaking, most companies make a cash offer on a new home on your behalf.

  • To qualify for this service, you'll need to request an assessment. The cash amount that you qualify for typically depends on how much equity you have in your current home, so a trade-in might not be an option if you've only owned your current home for a short period of time.
  • Once the cash offer is accepted, the trade-in provider purchases the new home on your behalf, and you can move in.
  • Next, the trade-in service lists your old home for sale. If the company sells that house, they'll pass the profits along to you, minus whatever cash they fronted for your new home and any applicable fees.

Some trade-in services have their own in-house mortgage options that you're required to use in order to qualify while others let you shop around to find the best possible rate.

What if my house doesn't sell?

If the trade-in company doesn't sell your house, they will usually buy it from you for an amount that you agreed to at the start of your transaction.

This backup offer is generally less than what you'd get on the open market, but it does give you the assurance that you'll be able to sell that house even if the right private buyer doesn't come along.

Is a home trade-in the same as an instant cash offer?

No — companies that make instant cash offers are called iBuyers, and they generally make offers that are at or below fair market value so that they can resell your house on the open market.

A trade-in service, on the other hand, still gives homeowners the opportunity to list their home on the open market and get the best possible price.

Some iBuyers, like Opendoor, have a trade-in program, and most trade-in services will still buy your old home from you if they aren't able to sell it after a certain period of time.

The main difference between trade-in services and iBuyers is that iBuyers are focused on purchasing homes and reselling them quickly, while trade-in services are focused on helping you finance the purchase of your new home and then listing your old one.

Home trade-in pros and cons

✅ Pros
  • No double mortgage. Buyers won't be caught in a stressful situation where they have to pay their new mortgage and their old one at the same time.
  • Backup cash offer. If your house doesn't sell on the open market and you really need to sell it, you have the assurance of a cash offer from the trade-in company.
  • Flexible timeline. Because trading in means you don't have to line up the sale of your old home with the purchase of your new home, you can move out when you want and then list your old house.
  • Make your offer stand out. An all cash offer will stand out to home sellers because it doesn't come with any financing contingencies. This could increase the chance that a seller accepts your offer over someone else's.
❌ Cons
  • Service fees. All trade-in providers charge a service fee or a convenience fee. This fee can be as high as 6%, in Orchard's case, which is the same as what you would pay in realtor commissions.
  • Limited markets. Trade-in services are relatively new, so the major trade-in providers are only available in select markets.
  • Rental fees. Some trade-in programs require you to pay rent on your new home until you buy it back. HomeWard, for example, calculates this fee based on their mortgage costs while they're holding the home for you.

Home trade-in costs

Every home trade-in service structures its costs a little bit differently, but the cost to trade-in a home generally includes:

  • A service fee. A percentage of the purchase price that the company charges for conducting the trade for you. Sometimes this includes the agent's commission, and sometimes it doesn't.
  • Closing costs (buyer and/or seller). You'd be responsible for these in a typical real estate transaction too. With a trade-in service you sometimes have to pay your closing costs as a buyer, as a seller, or both. Buyers usually pay 3-5% in closing costs while sellers pay 1-3%.
  • Loan origination fees. Fees that you need to pay your mortgage lender. Keep in mind that if your lender is the trade-in company, you'll have to pay this fee directly to them. The average loan origination fee is 0.5-1%.
  • Rent. Some trade-in services charge rent on a daily or prorated monthly basis until you buy the new home back from the company.
  • Cash repayment. Since the trade-in company fronts the cash to buy your new house, you have to buy it back from them once your old home sells.

The fees and expenses that are passed onto you when you trade-in your home aren't charged until your old home sells. This means that they're deducted from your profits, so you'll only have to pay cash out-of-pocket if the costs exceed the profit.

🏠 Rent charges can add up!
In most cases, you'll need to continue paying the mortgage on your old home before it sells, plus utilities and taxes.
If the trade-in service charges rent on your new home until you buy it back, your final costs might be higher than you anticipated, depending on how long it takes to sell your old house.

What to watch out for when you use a home trade-in program

🏦 Lender restrictions. Some home trade-in programs require you to use their mortgage lender in order to qualify. In this case, the mortgage interest and fees that you pay might not be the best available rate.

👨‍💼 Agent restrictions. If the trade-in program requires you to work with the company's in-house agents or partner agents, you might not be able to negotiate a better commission.

⏲️ Time limits. While backup cash offers are reassuring, you typically can't access them until your home has been on the market for a certain period of time. Flyhomes, for example, requires you to list your house for 90 days before you can accept their cash offer. That means you have to pay the mortgage and utilities for at least three months before you can sell directly to the company.

Popular home trade-in programs

The largest home trade-in programs are offered by companies like:

  • Knock
  • Orchard
  • Opendoor
  • Reali
  • Flyhomes
  • Homelight
  • Homeward

Here's a quick breakdown of how some of the largest trade-in porgams compare to each other:


Knock
Orchard
Opendoor
Reali
Homelight
Fee
1.25%
6%
5%
5%
1-3%
Rental fee
❌ (part of bridge loan)
$30-50 /day (with "Offer Boost")
Only after 120 days — 0.02% per day
Mortgage payment until old home sells
0.5-1% (after the first 30-days)
Mortgage (in-house or other)
In-house
Both
Both
In-house
Both
Cash advance
Up to $25k




Agents
Partner agents, (or bring your own)
Must work with an in-house agent
Must work with an in-house agent
Must work with an in-house agent
Must work with a partner agent

Knock

Knock was one of the first home trade-in services to offer customers an easier way to buy a new home before they sell their old one. With Knock, you get a bridge loan that helps you cover your new home purchase and repairs to your old home before it sells. Knock charges a 1.25% service fee.

» Knock Review | » Knock website

Orchard

Orchard helps buyers and sellers in Georgia, Texas, Colorado, and North Carolina. Besides financing the purchase of your new home, they'll prep and list your old home after you move out. You'll pay a 6% service fee when your old home is sold.

» Orchard Review | » Orchard website

Opendoor

Opendoor is the largest iBuyer on the market, but they've recently added a home trade-in program. Opendoor charges 5% and gives you the option to list your old house or sell it directly to them. Unlike some trade-in programs, Opendoor doesn't require you to list the property before accepting their cash offer.

» Opendoor Review | » Opendoor website

Reali

Reali's trade-in service includes unique perks like home staging and cleaning before your old house is listed. Reali charges a 5% service fee and closes on new homes in just five days, on average.

» Reali Review | » Reali website

Flyhomes

Flyhomes is a west coast home trade-in service that works with customers in Seattle, Portland, the Bay Area, and Boston. Flyhomes charges a service fee that ranges from 2.5-3% but offers up to 0.75% cash back after closing.

» Flyhomes Review | » Flyhomes website

HomeLight

HomeLight allows people to move into a new home by purchasing their old one and then passing along any additional proceeds (minus fees and expenses) once the old home sells. However, customers who don't use HomeLight home loans are charged a 3% fee, rather than a 1% fee.

» HomeLight Review | » HomeLight website

Homeward

Homeward makes it possible to buy your new home with a cash offer before your old home sells. There's no set service fee because Homeward determines the fee based on market conditions and the value/location of your home. Homeward charges a rental fee for you to live in your new home before your old one sells.

» Homeward website

Related articles

Better real estate agents at a better rate

Enter your zip code to see if Clever has a partner agent in your area.

If you don't love your Clever partner agent, you can request to meet with another, or shake hands and go a different direction. We offer this because we're confident you're going to love working with a Clever Partner Agent.