Yay, a real comment! I'm sorry I missed this. I thought I got email alerts, but maybe they're going to spam due to too many spam comments? I'll look into that.
"Buy with an option to sell" is often done for stocks and also by companies that want to keep operating leases off their balance sheets. In the former case, you just buy a stock (say for $1000) and buy an option (say for $50) that gives you the right to sell the same stock at some prespecified price (say $900) any time in the next xyz years (say 20).
You buy the stock because you expect its value to go up. Despite your expectation you still spend additional money on a sell option just in case your expectation is proven wrong.
So "why would the buyer do it" is an easy one - because the buyer knows that he or she could be wrong about value, and wants to mitigate the risk. It's the same reason you might get fire or flood insurance when you buy a house.
Why the seller would do it is a little harder. The easy answer would be, well, they do it in the stock market (someone takes the other side of every transaction), therefore people must be willing to do that kind of thing. A slightly less useless answer would be, they'd do it because buyers would pay a premium for the reduced risk, just like they pay a premium for the fact that it can actually be lived in. A (probably much) MORE useless answer would be that you could build insanely strong mortgage-backed securities on the arrangement - the securities that turned out to be so risky in the crash of '08, would be infinitely less risky if the buyers had a way out.
In other words, you have a vision of a real estate market that's primarily about investing, and people buying and selling properties for the purpose of making money. I'm thinking of that chunk of the real estate market - which I suspect is a solid majority - that's focused on the actual properties, and using them for their intended purpose. Homeowners who buy one place at a time, to live in, and sell it not based on value but because they want to move. Things like that. In that light, I still don't understand how this proposal would make sense to most sellers.
I'll agree that most people that buy houses probably do so in order to live in the houses. However, it is still a fact that they are tying up most of their life savings in a single risky investment. And, most homebuyers factor things like price into their decision to buy or even their decision as to whether to move between houses. A lot of people (possibly me included) even avoid buying at all because buying a home would be too risky - we never know what will happen if someday we do decide to move (this house went down in value? There goes the dream...).
Actually, when the housing market crash first happened, I remember a lot of people putting the blame on lower-class home buyers: they bought houses just because they wanted to live in them, with no consideration of the financial implications. Irresponsible borrowing. I have a completely different view of what caused the crash, BUT I still do think that many people would be better off if they treated their houses more like the investments they actually are.
That said, I realized I've been assuming that individuals buy from and sell to a bank/ real estate firm, and that the bank/real estate firm is always in the position of selling to the next guy that actually wants to live there. Individuals (I admit) would never themselves want to get tangled up in a "we promise to buy this back to you at xyz price" kind of scheme. That would be a horrible idea.
"Buy with an option to sell" is often done for stocks and also by companies that want to keep operating leases off their balance sheets. In the former case, you just buy a stock (say for $1000) and buy an option (say for $50) that gives you the right to sell the same stock at some prespecified price (say $900) any time in the next xyz years (say 20).
You buy the stock because you expect its value to go up. Despite your expectation you still spend additional money on a sell option just in case your expectation is proven wrong.
So "why would the buyer do it" is an easy one - because the buyer knows that he or she could be wrong about value, and wants to mitigate the risk. It's the same reason you might get fire or flood insurance when you buy a house.
Why the seller would do it is a little harder. The easy answer would be, well, they do it in the stock market (someone takes the other side of every transaction), therefore people must be willing to do that kind of thing. A slightly less useless answer would be, they'd do it because buyers would pay a premium for the reduced risk, just like they pay a premium for the fact that it can actually be lived in. A (probably much) MORE useless answer would be that you could build insanely strong mortgage-backed securities on the arrangement - the securities that turned out to be so risky in the crash of '08, would be infinitely less risky if the buyers had a way out.
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Actually, when the housing market crash first happened, I remember a lot of people putting the blame on lower-class home buyers: they bought houses just because they wanted to live in them, with no consideration of the financial implications. Irresponsible borrowing. I have a completely different view of what caused the crash, BUT I still do think that many people would be better off if they treated their houses more like the investments they actually are.
That said, I realized I've been assuming that individuals buy from and sell to a bank/ real estate firm, and that the bank/real estate firm is always in the position of selling to the next guy that actually wants to live there. Individuals (I admit) would never themselves want to get tangled up in a "we promise to buy this back to you at xyz price" kind of scheme. That would be a horrible idea.
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