Buyer Protection Plan – Revisited

Buyer-Protection-PlanHome sellers can get pretty anxious when they list their property and weeks go by with no bites. Some become willing to try almost anything, within reason, to generate buyer interest.

That's where the Buyer Protection Plan (BPP) comes in. When all else fails and price drops are unpalatable to the seller, the BPP provides another option.

The Buyer Protection Plan is designed to give nervous buyers insurance against falling home prices. It works like this:

  • When a buyer purchases a home, the seller puts 5% of the sale proceeds in trust.
  • Those funds are refunded to the buyer if surrounding home prices drop by 5% or more in 12 months.
  • If prices drop less than 5%, the trust funds are split proportionately between the buyer and seller

We covered the BPP a few years ago when it first launched (see: Buyer Protection Plan). But the service never really got off the ground. Founder Greg Williamson says a recovering real estate market was the culprit. (The BPP does best when there’s a perceived threat of falling home prices.)

Greg-WilliamsonWilliamson re-launched the service this year because, as he predicts, “We are in the first inning of what we think will be a sustained real estate slowdown.”

Since the beginning of the year, he’s attracted 371 Realtors and a few thousand listings (i.e., sellers who have agreed to offer the program to a prospective buyer).

Interestingly, despite all those listings, there has never been one seller who has actually put 5% of the purchase price into the trust account.

“It is always negotiated out (of the deal),” says Williamson. Often, a buyer may put in an offer that’s simply too low for the seller to also offer the BPP.

Here are more details about the plan:

  • The cost is $299 + tax (paid by whomever gets paid the trust funds)
  • Local real estate board data is used to determine if area prices have dropped after one year
  • No interest is paid on the trust funds while they're tied up for that year

The BPP boils down to a way to generate interest in a languishing property. But it runs into a few snags, namely:

  1. Many buyers are willing to assume the risk of falling prices and prefer the lowest possible selling price up front.
  2. A simple price cut would expose a property to more buyers (since a lower price increases the odds that a property falls within their price search parameters.)
  3. Some buyers may mistakenly doubt that they’ll see their 5% back, despite the third-party trust account setup
  4. It is not currently possible to easily search for real estate listings that include the BPP (Williamson says he’s building a new website to address this)

The Buyer Protection Plan is marketed through mortgage brokers who have signed up to offer the program. More details can be found here.

Sidebar: CTV covered this story last week and ran this review

Rob McLister, CMT

  1. Silly program. If you want to sell, drop the price. No fee required and much more effective. Also I would imagine a legal nightmare proving that the value of the home actually dropped.

  2. This seems a little gimmicky but sometimes a price drop alone doesn’t address people’s fear of falling prices. It’s probably something that can’t hurt and can only enhance a listing.

  3. Silly :) yeah, your comment
    A seller may gain more if he uses that program, while the buyer will have a piece of mind and an incentive to buy.
    I will recommend to you personally when selling, just keep dropping the price till someone buys, don’t look for any silly programs like this one.

  4. “generate interest in a languishing property”
    If a property is languishing, its priced too high. There is always a buyer if a property is priced right for the local market and economy.

  5. >> A seller may gain more if he uses that program, while the buyer will have a piece of mind and an incentive to buy.
    The performance of the program (0% acceptance rate) proves this is not true.

  6. I agree that some people are more sensitive to market turns than others and what keeps them awake at night is not a 5% market decline. Its a 20, 30 or 40% correction. This product does nothing to alleviate those fears.
    This product is like having homeowner insurance coverage for the garden shed but not the house.

  7. If someone wants 100% sure gain, don’t buy a house, buy Bonds :)
    Whoever’s afraid of water, don’t attempt to swim.

  8. Why would anyone feel the need to create such a protection plan when real estate prices go up forever and when low interest rates are the new norm?

  9. In Greater Vancouver we have a slower than normal spring market. If you have several homes in the neighbourhood close in price range and similarity and one of them is offering the Buyer Protection Plan option, which one do you think may have more interest and a better chance of a negotiated offer? It will be more likely to get to the offer/negotiation stage than the others instead of continually dropping the price. If the price is negotiated to the sellers bottom line they can take out the BPP offer.

  10. I think the most interesting thing in the article is: “never has actually been used”.
    While I absolutely respect the intelligence of the marketing approach, its interesting to think of promoting something that has to date a 100% certainty of not actually happening.

  11. A buyer who is worrying about the price tomorrow, should wait until tomorrow to buy. Or in other words, RENT! Real estate is obviously not the investment for them. What happens to the housing market up to a year after a property has been sold is not the seller’s problem. Can you imagine someone asks for insurance on stocks purchased in the open market? If a mortgage lender saw such a clause on a purchase agreement, what would the implications be on the mortgage? Would the purchase price be cut back 5% to refelct the possible true price paid? Sounds like the product hasn’t been thought through.

  12. “Can you imagine someone asks for insurance on stocks purchased in the open market?”
    Yes I can. It’s call an “put option.”
    It sounds like your comment wasn’t thought through because the BPP is approved by at least three lenders that I know of. It’s also insurer approved.

  13. Let me clarify the 0% acceptance rate issue and whether the program “works”.
    When I decide if something “works” in need to go to the original intent. If a buyer pays a fair price for the home today, we deem that to be at or near the asking price, then the program is ready, approved, and able to facilitate the agreement.
    If however, the buyer wants to “low ball” the offer, then the seller may choose, and often does, to remove the Price Drop Protection out of the offer.
    For Mortgage and Real Estate Professionals the program works very well. The intent is to drive leads, and we are doing that. text 8771 to 33344 if you would like to see the demo of how we do lead capture for this program.

  14. See my Comment reply above.
    The value is in the leads, always has been, and I know you know that well.
    We are generating a lot of leads, the new trick which is elusive for us all I think, is mastering conversion. Alas, we continue to plug away with that…

  15. Nothing like gambling on one roll….is it black or red….is it up or down ?? How are the real estate boards not investigating this program..basically gambling up to 5 percent of a houses worth on what the market does in a year from now!! If you have a buying realtor that wants you to make such an offer…..get a new realtor. Lets call a spade a spade….if the house is really worth 500,000 the selling homeowner will not risk 25,000 on the market in a year. And if he is willing to sell for 500,000 with this program odds are the house is worth less than 500,000.

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