Daniel Markovits and I have a new piece in Slate arguing that sellers could use a fairly simple escrow agreement to provide buyers with price protection:
Why would sellers ever agree to such an arrangement? For starters, it may help them sell their homes. And it wouldn’t necessarily cost them very much. Sellers could commit to reimbursing their buyers for any fall in the average value of homes in their area in the year following a sale. Such price protection would give buyers confidence that they won’t regret their purchases even if the market does fall further and cheaper houses come on offer — confidence that they need in order to buy now. And if buyers gain confidence, prices won’t fall, so sellers won’t have to pay. … And it’s natural for sellers to provide the insurance that price protection involves. If they can’t sell their houses, they’re going to end up bearing the house price risk anyway.
Turns out some sellers have already started providing this type of protection. Cousins Properties in March announced the Cousins Assurance Program to assume most risks for qualified condominium buyers for a luxury condo high rise in the Buckhead area of Atlanta. The program description says:
If your home appraises for less than your purchase price after three years and you wish to move, we will refund your equity.
Now might be a propitious time for a gentle government nudge in this direction. Mandatory price protection would be a bad idea; but “the government might develop standardized escrow forms or require real estate agents to offer buyers and sellers the option of including price protection in their contracts.”