I'm interested in hearing the opinions and comments from other agents and brokers about a new program being developed to help sell more houses. The program works similar to the way an insurance plan works and provides homeowners with price protection of their home equity if their value drops.
The way it works is homebuyers or homeowners choose how long of a period of time (1- 10 years) they want to protect themeselves from the possibility of falling prices. (They can stop the program at any time by either cashing the contract in or quit making premuim payments.) The contracts are based on larger sampling of home values in their surrounding neighborhood or community. The index being used is Office of Federal Housing Enterprise Oversight (OFHEO) which is the same basic idea to the S&P Case Shiller Housing Futures Index. Because the contracts are based on a larger area and not the individual house, homeowners are still rewarded for maintaining their homes and improving them. If their house went up in value but the larger area which the index is based and the contract is calculate on went down, they would still be able to collect on the contract.
For example, a homebuyer buys a house for $500,000 and takes out this home price protection plan. The cost for the protection runs .75 to 1.5% (three quarters of a percent to one and a half percent) of the home value per year. The payments can be made yearly or montlhly.
Let's say this homes in this area were to decline 15% over the next two years. The homeowner could then cash in their contract and recieve $75,000 without having to sell the house. The contacts have an elimination period of 12 or 18 months before one can make a claim on it or cash it in.
I'm thinking some sellers might be willling to pay the first year or two of premium in order to get the sale made instead of lowering their price. At the end of two years the homeowner could continue with the plan, cash it in if prices have fallen, buy a new plan , or just stop making payments and drop the plan. It makes no difference who pays the premiums. Builders might even want to offer this in lieu of other incentives.
What do other agents think of this type of program? Do you think this would help in making a sale? What are some of the situations where either buyers or sellers would go for this? Your opinions are appreciated.
Brandon Michaels
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