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Developer offers equity protection

Real estate: Program pays buyers if their home value drops between the purchase and resale

Posted: October 28, 2011 1:55 a.m.
Updated: October 28, 2011 1:55 a.m.

Pardee Homes is introducing an equity-protection program.

 

Introducing a unique model for jump-starting the new home market, Pardee Homes has introduced an equity-protection program to buyers on select homes in the Los Angeles market.

The equity-protection program pays buyers if their home values drop between the time of purchase and the time of resale. It’s the first homebuilder program of its kind to offer such a safeguard, according to a spokesman for Pardee.
The program, also offered in Las Vegas, is currently available for select homes at Pardee’s Oak Crest and LivingSmart Homes at Fair Oaks Ranch.

“The Equity Protection Program brings assurance to buyers who are concerned about possible future declines in new home pricing,” said Gary Probert, senior vice president of sales for Pardee Homes. “At no cost to these buyers, we are helping to minimize uncertainties about buying the new home they want today.”

The equity-protection plan is being offered through Colorado-based EquityLock Solutions and compensates the homeowner at resale for any decline in the local house price index as reported by the federal Housing Finance Agency, regardless if the owner is selling the home at a loss or a gain.

As an added benefit, the equity-protection program includes monthly payments of $1,500 in the event of job loss, for up to 12 consecutive months.

Equity-protection programs can be purchased by buyers, usually at the cost of 1 to 3 percent of the home value, but in this case Pardee Homes has elected to purchase the plan on behalf of the buyers on available homes.

Coverage begins 24 months after close of escrow and extends for 15 years. The program has a two-year waiting period before a buyer can sell his or her property and take advantage of the program.

“We are working to help homebuyers who are buying their new home to live in, not to use as a speculative financial tool,” Probert said.

Programs of this nature have their roots with economists who advocate equity protection to help address consumer confidence issues, Probert said. The economists include Ben Bernanke, chairman of the Federal Reserve, who called on the private sector to bring home equity protection to the market in 2008.

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