Selling a house on an annuity basis

What is a house sale on an annuity basis?

An annuity-based house sale is a form of property sale where the sale price is paid in instalments rather than all at once. The seller therefore does not receive a one-off, large payment, but receives smaller amounts over a longer period of time. The instalments can be paid monthly, for example, or once a quarter. Often, when selling a house on an annuity basis, a right of residence is agreed - the seller may therefore remain living in his former property after the change of ownership.

How does the annuity-based house sale work?

Since the sale of a house on an annuity basis has a number of special features, the procedure is also a little different compared to the classic model. These special features mainly concern aspects such as the sales price, the potential target group and the term of the instalment payments:

Term: annuity or time annuity?

When selling a house on an annuity basis, the buyer and seller must first agree on a term model. Basically, there are two variants: the annuity and the life annuity. We will briefly explain both types of annuity here:

The life annuity is a form of real estate annuity in which the seller receives the buyer's instalment payments until the end of his life. As the new owner, the buyer is responsible for any maintenance of the property. For the buyer, this can potentially represent a cost risk. Because if the seller lives longer than statistically assumed, it can happen that the new owner pays significantly more for the property.

In contrast to the life annuity, the instalment payments in the case of the time annuity take place over a predefined period of time. Here, too, there is the possibility of a lifelong right of residence for the seller. The advantage of this model is that the costs are easier for the property buyer to calculate.

Selling price of the property - lower than with a classic house sale

For the seller, selling a house on an annuity basis is at first glance an attractive alternative to the classic model of selling a property. After all, he can count on continuous income from the sale of the house, which, depending on the term model, can even be paid out until the end of his life. For the buyer, on the other hand, there is the incalculable risk that he will pay more money for the property than originally planned if the seller lives a long time.

For this reason, a so-called risk discount is usually deducted from the sale value of the property. This (lower) sales price in turn serves as the basis for calculating the amount of the instalments. Selling a house on an annuity basis is thus advantageous if the seller wants long-term income. On the other hand, due to the risk discount, the sale price of the property is usually significantly lower than the price in a traditional sale.

Overview: Advantages and disadvantages of selling a house on an annuity basis

The real estate annuity is a niche product. For this reason, we have listed the biggest advantages and disadvantages - from the seller's point of view - of selling a house on an annuity basis for you below:

Advantages:

• Liquidity: By paying out in instalments, the seller of the property receives a constant cash flow.

• Right to live: As a rule, the sale of a house on an annuity basis is linked to a lifelong right of residence, so that the seller can continue to live in his former property after the sale.

• Need for care: If the seller can no longer live in their property for health reasons, they will still receive the property annuity.

Disadvantages:

• Lower sales price: Due to the risk discount, houses sold on an annuity basis usually achieve a lower sales price than those sold according to the classic model.

• Fewer interested parties: The right of residence and a term that is usually incalculable make the sale of a house on an annuity basis less attractive for buyers. Fewer potential buyers are the frequent consequence.

• Taxes: The real estate annuity is taxed in addition to the normal annuity. The younger the seller, the higher the taxation.

• Inflation: Unless a corresponding value protection clause has been agreed in the purchase contract, the real estate annuity is vulnerable to inflation.

Alternative: Reverse mortgage

As an alternative to selling a house on an annuity basis, the so-called reverse mortgage (or also: reverse mortgage) has emerged in recent years. This is a loan contract that is agreed between the owner of the property and a credit institution, whereby the payment can be made in the form of a higher, one-off sum or, as with the property annuity, in instalments. Since the reverse mortgage does not change the ownership of the property, the owner can remain in his home. The difference with the real estate annuity, however, is that the bank reclaims the loan at the end of the agreed term. If it does not get it back, the bank has the right to sell the house to repay the loan. Any surplus is then received by the former owner or his or her heirs.

Summary: Classic house sale or house sale on an annuity basis?

Whether the classic house sale or the annuity-based house sale is more suitable for the property owner depends above all on their individual needs and personal situation. If the owner attaches importance to long-term security, the real estate annuity can be a worthwhile alternative to the regular house sale. However, it is important to note that selling a house on an annuity basis is still a niche product in the real estate industry. Accordingly, not only is the search for potential buyers often laborious, but the actual sale is also more complex. Property sellers are therefore well advised to weigh up all the options with an experienced estate agent at their side in order to make the house sale a success.