How this Innovative Model Works
The HERO arrangement enables a senior homeowner to obtain cash immediately in exchange for an option to purchase the property exercisable only after the owner has died or has vacated the property.
The heart of the program is the option, an agreement that grants the option-holder the right to buy the homeowner’s property, the term of which would be measured by the homeowner’s lifespan. This assures the owner that he or she will not be forced to move and may remain at home. Such an option is not unknown in real estate, but is most commonly found in commercial leases and usually provides for a fixed term of years.
Under HERO, the homeowner would receive a sum of cash upon execution of the option agreement in an amount equal to a percentage, perhaps 10 percent, of the property’s then appraised value. Upon the death or relocation of the homeowner the option could be exercised and the property bought at a small discount (again, perhaps 10 percent) of the original appraised value. The cash paid to the homeowner when the option agreement was executed would also be credited against the sale price.
While the option would be exercisable, generally only upon the homeowner’s death, it would also be exercisable if the homeowner attempted to sell to another or vacated the property for a period of time. Under the latter circumstance a move to a nursing home could trigger the option.
To secure the option-holder’s rights and protect his investment, the option would be recorded and a system of certification would be put in place requiring the homeowner periodically to certify, inter alia, that taxes had been paid and insurance was in effect. Upon failure of either condition the option would be exercisable.
There should be attractive opportunities for marketing HERO. Many states and localities reduce property taxes for senior citizens with limited incomes, making these individuals easily identifiable as potential customers. The real estate broker network should also be interested. Since each HERO transaction looks towards a future sale, it may be possible to offer brokers a prospective exclusive listing.