Why Enter into a Sale with Right of Repurchase?

The Principle of a Real Estate Repurchase Agreement

A sale with right of repurchase involves selling a property while retaining the right to use it, with the seller having the option to repurchase it at any time within a five-year period. The repurchase price is set at the outset. If the seller does not wish to or is unable to repurchase the property, the buyer has the option to resell it and pocket the difference between the resale price and the repurchase price.

In 2009, the “sale with right of repurchase” was renamed in the Civil Code. It is defined in Articles 1659 et seq. of the Civil Code, which state: “The right of repurchase is an agreement whereby the seller reserves the right to take back the sold item, subject to the return of the principal amount and the reimbursement referred to in Article 1673.”

A sale with right of repurchase can apply to all types of real estate: apartments, single-family homes, offices, warehouses, etc. It is an alternative to a mortgage, for which lending criteria are strict in France. Unlike in Anglo-Saxon countries, it is difficult in France to obtain a loan based solely on the real estate provided as collateral. Banks place greater emphasis on the borrower’s income and employment status than on the value of the mortgaged property.

The key requirement for eligibility for a sale with right of repurchase is a cash flow need of less than 60% of the property’s value, since the transaction is conducted at a sale price ranging from 60% to 70% of the property’s actual value. For more information, see the eligibility requirements for a sale with right of repurchase.

To get a concrete idea of how this works, consider the example of a real estate investor who owns a property worth €500,000 and needs €300,000 to finance a new purchase. The property is sold under a buyback agreement for €300,000. This provides the seller with the funds for their new project. At any time, the seller may repurchase the property for €315,000 within a 24-month period. The maximum term of a sale with right of repurchase is often shorter than the legal limit of five years. The seller may continue to use the property and, in particular, collect rent if the property is leased. In exchange for deferring use of the property, the seller pays a monthly compensation amount comparable to the rent. For the transaction to be profitable for the seller, it is in their best interest to exercise caution by securing financing for the repurchase before selling their property under a repurchase agreement. If they are unable to repurchase the property, they may resell it and receive the resale price minus the repurchase price (€185,000).

The Benefits of a Sale with Right of Repurchase for the Seller

A sale with right of repurchase is, above all, an effective solution for the seller. It allows the seller to quickly convert real estate assets into cash without permanently losing ownership of the property. Through this transaction, the seller can:

• pay off debts and stop proceedings such as being placed on a bank watchlist or a property foreclosure;
• restore a sound financial position and once again become eligible for traditional financing;
• finance a new personal or professional project using the funds that have become available;
• continue to live in the property or collect rent if the property is rented out, while retaining the option to repurchase it.

In summary, a sale with right of repurchase allows the seller to overcome a temporary financial difficulty while retaining control over their assets. It serves as an alternative to a bank loan and is particularly well-suited for those who have been denied a loan but own real estate that can be leveraged.

If you are a homeowner and want to quickly obtain cash without permanently parting with your property, a sale with a right of repurchase may be the right solution for your situation.

What are the requirements to qualify for a sale with a right of repurchase through Raizers?

To be eligible for a sale with a right of repurchase through Raizers, the property owner must own a debt-free property. The financing offered can cover up to 70% of the property’s value, for amounts ranging from €500,000 to €5 million. The borrower is granted the option to repurchase the property within a period of 12 to 24 months, providing a temporary refinancing solution while retaining the ability to regain full ownership of the property.

Choose a sale with right of repurchase with Raizers

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