A trade up brokerage or service allows a buyer to make a cash offer on a new home before selling their existing one. This helps a buyer make a stronger cash offer without contingencies. Trade up services often charge a flat fee for this feature. Trade up brokerages do not charge a fee if the buyer also sells with that brokerage.
Accessing cash while buying and selling a home is complicated. A buyer needs a bridge loan, which often has a high interest rate. In some cases, bridge loans are challenging to get altogether. The buyer purchases the new home with the borrowed cash. They then sell their original home to pay off the bridge loan. Simultaneously, the buyer is paying a mortgage on both properties. Trade up services simplify this. They offer a simple service that helps a buyer simultaneously buy and sell. This helps add liquidity to the market, as there is less friction to upgrading to a new home.
Some trade up companies charge a fee as a percentage of the home being purchased. Usually this is 1-3% and turns the buyer’s offer into an all-cash position. Many of these services encourage this fee to be paid by the seller. Other companies offer brokerage services. These companies include the trade up option if the buyer is working with the brokerage to sell the home. For brokerages, money is made by representing the buyer on one or both sides of the transaction.
Most trade up services issue an initial backup offer. This is based on a valuation made early in the process. If a home doesn't sell they will buy the home or partner with someone who does. And they will pay the backup offer price. As a result, trade up services have an approval process before working with any buyer.
Trade up services help buyers access cash from the home they’re selling without taking out a loan. All fees are built into what happens at sale. Fees come from the close of the home sale of the home purchased. Or from brokerage fees across the home for purchase and sale. Bridge loans require an upfront loan and money is returned regardless of outcome. As a result, fees can vary based on the length of the loan and can be very high if the original home does not sell.
Orchard and Flyhomes are two tech-enabled brokerages that offer trade up services. These two services employ the agents that offer these services. Knock, Homeward, and Ribbon offer trade up services for a fee through partner agents.