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LOCK IN EQUITY IN A DOWN MARKET
Posted by V.K. [Mel] Melhado P.A. on Tuesday, March 17th, 2009 at 7:35pm.
I read with great interest the other day an article in the Naples Daily News that talked about a specific Naples builder who was offering buyer protection that would protect the purchaser against any loss during a market downturn. The plan is known as new home price protection and has recently been offered nationwide by a company out of Texas called EquityLock Financial.
The plan is structured as a contract, not as an insurance plan and is tied to a local market index. Should the index drop at the point of a sale, EquityLock will pay the percentage that the index has dropped despite whether the sale shows a profit or loss.
The plan is offered to not only developers and builders, but to average homeowners as well. The cost is between 2% to 3% of the purchase price of the home. There is one small catch, which will rule out the "flippers", that a buyer must keep the home 18 to 24 months to qualify for a claim.
I found myself wondering why all developers and builders wouldn't want to offer the same product. What a great incentive in this market!
V.K. [Mel] Melhado PA
Downing-Frye Realty, Inc.
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