Choosing annuities for a home reversion: the case of the French viager market

The authors analyzed annuitization preferences when retired people extract cash from their homes. Based on 2,608 viager (home reversion) transactions, the authors study the relations between annuitization, negotiation, cash extraction, age, gender and marital status.

A database comprising 2,608 transactions is used. The three-stage least squares (3SLS) and moderation models are implemented, with a focus on potential adverse selection issues.

The authors found that difficulties in selling a property generally result in increased annuitization. The single men's group endures gender inequality, suffering from limitations in their possibility to extract wealth and annuitize, as well as an additional price discount during negotiation. Young single men, as compared to young single women and young couples, must consent to a substantial price reduction if they prefer a high down payment and limited price reductions if they prefer annuities. Elderly single men, as compared to young single men, have less capacity to negotiate, a concern that is reinforced when they prefer annuities.

Among the home equity conversion products, the academic real estate literature has intensely analyzed the reverse mortgage. The viager is distinct from a mortgage in that it consists of the true sale of a property without bank involvement. This product deserves reinforced attention in an aging continental Europe. It exists in numerous countries (France, Belgium, Germany, Italy, Spain, etc.).