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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