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...South Florida, you have literally tens of thousands of unsold units and a lot of the biggest builders see this [program] as a significant marketing tool," says Herzberg. "It gives them a huge competitive advantage in a very crowded marketplace...
Still, Herzberg's Sirius Value program is far from a slam-dunk fix for the housing slump. Under the program, which received a provisional patent from the U.S. Patent and Trademark Office last month, the developer or homebuilder must give 20% of the purchase price to Herzberg's group as a fee for the put option - a payment that many developers may be reluctant to cough up. "20% is astronomically high!," says one analyst, who did not wish to be named. "What builder would give away 20% when they're doing 5% or 10% [pretax] margins? If they gave away...
Joel Rassman, chief financial officer of luxury homebuilder Toll Brothers Inc., says the program sounds "expensive" to him, although he does say that a lower fee "might make the program worthwhile" in certain markets...
...program isn't without risk for homebuyers either. It requires the homeowner hang onto the new home for eight years before being able to exercise the put option. If the owner sells the house on the open market or loses it in foreclosure before the eight-year waiting period expires, the person is out of luck - the put option becomes worthless. However, homeowners do have the option of opting out of the program in the first six years in exchange for handsome cash bonuses, ranging from 10% of the purchase price in year one to 3% in year six. Still...
Some also question the program's long-term financial viability. Sirius Value isn't regulated since it's neither an insurance product nor a security, and experts caution that a lot can happen to a market, program or company in the eight years before the put option can be exercised. "Do they have the financial resources and will they be here eight years from now?" asks Curran...