It is up to the seller to choose the breakdown between the down payment—the lump sum received immediately—and the annuity paid every month for the rest of their life. If the goal is to protect the surviving spouse, it is better to opt for a higher annuity and a smaller down payment.
Article published in Le Figaro on May 23, 2022. By Valérie Valin-Stein
OUR ADVICE – It is up to the seller to choose the breakdown between the portion of the property price paid as capital upon closing the sale and the annuity paid every month for the rest of their life. Various formulas are possible.
Turning one’s home into a source of income guaranteed for life: this is the principle of the life annuity sale, a formula currently experiencing a revival. It is up to the seller to choose the breakdown between the down payment (the portion of the property price paid as capital upon closing the sale) and the annuity paid every month for the rest of their life. However, beforehand, the value of the life annuity must be determined. This starts with the market value of the home—that is, its price on the traditional real estate market. “To this market value, an occupancy discount is applied in the case of an occupied life annuity sale. It varies based on the age and gender of the seller(s). The resulting amount is divided between the annuity and the down payment. If it is a vacant life annuity sale, only the down payment amount is subtracted from the market value, and the life annuity is calculated based on the same criteria as before,” explains Sophie Richard, life annuity expert and founder of the Viagimmo agency network.
“We sometimes hear that the down payment must correspond to 20% or 30% of the life annuity amount. This is false; anything is possible, including the absence of a down payment,” emphasizes Reza Nakhaï, founding partner of Viva Viager. If the goal is to protect the surviving spouse, it is better to opt for a higher annuity and a smaller down payment. “Especially since the entire annuity is fully transferable to the surviving spouse,” adds Reza Nakhaï. The strategy remains the same if the seller considers themselves a poor money manager. “This will also be the model chosen for an adult under guardianship or curatorship. The legal representative will be reassured to know that the protected person can easily cover their daily expenses,” adds Sophie Richard. Finally, the option of a high annuity may also be chosen by seniors planning to move into a retirement home. “For them, it is the assurance of receiving additional income for life to finance their housing. As a bonus, it reassures the children,” says Sophie Richard. Note that the life annuity is subject to income tax after a 60% deduction after age 60 (70% after age 70).
Conversely, prioritizing the down payment over the annuity will suit sellers with significant debts. “Some seniors take out personal loans to maintain the lifestyle they were accustomed to while working,” confides Sophie Richard. Others opt for this solution because they wish to help their loved ones during their lifetime or realize a project close to their heart. Such was the case for a retired couple from Vendée whose dream was to buy a motorhome to tour France!
Meeting the Sellers’ Wishes
However, the seller’s needs must align with those of the buyer. Professionals note that seniors are often socially isolated after their children leave and some of their friends pass away. The best way to protect and reassure them is to maximize the number of potential buyers. Thus, an excessively large down payment may—except in areas sought after by a wealthy clientele (Paris, seaside, or mountain resorts)—reduce the number of potential buyers. “The down payment must generally be paid in cash. Indeed, the seller benefits from a first-priority mortgage that places them ahead of lending institutions, which is rarely appreciated by the latter,”
explains Reza Nakhaï. To find more potential buyers, the solution is to split the property ownership and sell the bare ownership, which is easily financed through credit. “The seller then receives the full sale price at the time of signing and benefits from a usufruct that allows them to rent out the property if they wish. It is a formula that appeals to buyers as well as our seller clients,” explain Nicolas Pettex and Vincent Illouz from Féau’s life annuity department.
As for high annuities exceeding 5,000 euros per month, they can also deter buyers, with some exceptions. For instance, in Paris, a resident of the Left Bank was able to sell her large apartment near Les Invalides through a life annuity sale with no down payment but a monthly annuity of 20,000 euros. Enough to afford a—very—pleasant lifestyle for the rest of her days.
