Frequently asked questions about the EquityKey Real Estate Option

The EquityKey Real Estate Option serves the growing market of homeowners over 65 who wish to access some of the value of their homes without dipping into home equity or incurring new debt. The Real Estate Option is not a mortgage product, loan or a form of financing. Instead, it represents an investment in the future appreciation of a client’s home. Clients do not give up any of their home’s current equity value; rather, they sell the right to a share of the future appreciation of their home.

The EquityKey Real Estate Option is available for both residential homes (either primary, secondary or investment property) and commercial properties (apartment complex, retail property, etc.).

2) How is the EquityKey Real Estate Option different from a reverse mortgage?

A recent study shows 75% of seniors understand reverse mortgages but only 2% have them (Harris Interactive, Harris Poll, May 2007). While reverse mortgages make sense in particular circumstances, they carry high closing costs and, over time, eat significantly into the home equity value of the homeowner(s). Unlike the EquityKey Real Estate Option, reverse mortgages can be taken only on a primary residence and require owner occupancy in that residence. In addition, all homeowners must be at least 62 to qualify for a reverse mortgage. With the EquityKey Real Estate Option, only the owner applying needs to meet the age requirement and all of the owner’s properties, regardless of occupancy, are eligible.

3) What is the nature of the relationship between Diversified Residential and Commercial Services Inc. and EquityKey?

We are a certified EquityKey broker, which enables us to originate sales for EquityKey.

We market the EquityKey Real Estate Option here in our region and take prospective clients through the qualification process. Ultimately, EquityKey enters into a Real Estate Option agreement directly with the client property owner.

4) Do I ever have to pay the money back to EquityKey?

No, as long as you keep up your end of the bargain. The money received is not a loan, line of credit, or debt of any kind. Participants receive a lump sum in exchange for the future and unknown appreciation of their home. Please refer to the EquityKey contract for a complete description of your responsibilities as a homeowner in the EquityKey Program.

5) What happens to the home?

Plan participants maintain their rights and obligations as homeowners as long as they own the home and throughout their life, regardless of whether or not they continue to reside in it. EquityKey's only interest is its share of the future appreciation above the initial appraisal value. To realize this share of appreciation, EquityKey purchases the home upon the client's death, and also has a right to buy the home should the client choose to sell before his or her passing. Regardless of when EquityKey buys the home, we do so at fair market value minus our share of appreciation and acquisition costs.

6) Does EquityKey always purchase the property? What if I want my home to stay in my family?

In many cases, EquityKey will offer to be the purchaser of the property upon the client's passing or decision to sell. In some cases, specifically very depressed real estate markets, EquityKey may leave its option to purchase the property unexercised. In all cases, should your heirs or estate wish to keep the property in the family, they will have the right of first refusal to keep the home and simply pay EquityKey their share of appreciation at fair market value.

7) Will my estate and I always be better off with the EquityKey Program?

Real estate is like any other investment; it can go up or down in value. Because of this, there can be no guarantee that the amount you receive from the EquityKey program will be equal to or greater than the profits you or your estate would have earned from future appreciation in your home had you not entered into an EquityKey transaction.
In some instances, a dramatic rise in the real estate market and the value of your home could mean the value of the appreciation you have sold will exceed the amounts you received from the EquityKey program. In other instances, if real estate remains flat or there is a "dip" in home values, EquityKey may end up having paid you more than we earned through appreciation.

8) What other fees might apply?

There are no upfront fees with the EquityKey real estate option, only a small deposit of $300 that is refunded should you complete the transaction and become an EquityKey participant, or if you do not qualify for the program.
You or your heirs will have costs in the future if you were to sell your house. Therefore, if, at the end of the agreement's term, we acquire your property, we will charge an acquisition cost equal to our actual third-party costs to sell it. This will never be more than 8% of the fair market value of your house at that time. When the house is being settled and we pay off your estate, we will hold 8% of the proceeds to settle the estate, and the difference after the house has been sold will be issued to your estate.

Please refer to the EquityKey Investment Agreement and your own financial advisor, tax planner or legal counsel to see how your estate may be affected by participation in the EquityKey program.

9) Why might one spouse be considered and not another?

In order to manage its risks and create the liquidity needed to purchase the home, EquityKey must purchase and hold a life insurance policy on all participants. If a person is uninsurable or the cost of coverage is too high, he or she might not qualify to participate in the EquityKey program. Additionally, the clients themselves may want to hold on to some of the appreciation of the property, and thus choose to only have one spouse participate, pledging 50% of appreciation to EquityKey.

10) Why does EquityKey purchase life insurance?

EquityKey buys a life insurance policy on the homeowner in order to protect EquityKey’s investment in the property.

11) Can I get a reverse mortgage or other loans against my house if I participate in the EquityKey program?

While forward mortgages are allowed up to a certain loan to value limit, reverse mortgages should not be expected to be available to participants in the EquityKey program. This is because reverse mortgage lenders require that they be the only lien on your property, with recourse to not only the existing equity in your home, but also to any potential growth that might occur. As part of your contract with EquityKey, EquityKey files a performance deed of trust with you in the appropriate government office. This means that potential future lenders to you, from whom you may want to borrow using your equity as security, will see our filing, and may not want to lend any amounts to you.

Please be sure to have your counsel and/or your tax advisor review the EquityKey Investment Agreement. While EquityKey program personnel will be happy to answer any questions you may have regarding the terms of the contract, neither EquityKey nor any of its sales agents are your financial or personal advisor, and you should not rely on them for advice as to whether this product is appropriate for you or your family.

How It Works

· A one-time $300 application fee that is refunded should the potential client not qualify or when the client is funded.
· Clients must qualify based on age, health, property values, and the loan-to-value ratio concerning the property.
· Two appraisals of the assessed value of the property paid by EquityKey.
· EquityKey pays typically 10-15% of assessed value up front and the client agrees to sell 50% of future appreciation to EquityKey.
· EquityKey simultaneously purchases a life insurance policy on the client.