A home buyout occurs when a public agency negotiates the purchase of homes from private homeowners. There are many different reasons for buyouts: the homes may be blocking a public construction project, or lying in a hazardous area, such as a floodplain, where there is a strong risk of costly damage. A home buyout compensates the owner for a percentage of the market value of the home, and may also cover relocation costs.
In the most common form of home buyout, public agencies negotiate with private homeowners to sell their homes and move away from a designated area. The agency and the owner agree on a sales price; the home is not available to private buyers. The motivation is the avoidance of costs if a natural disaster occurs, or for major new construction such as an airport. In early 2012, for example, the city of Minot, N.D., negotiated the buyout of 224 homes in a hazardous flood plain, at an estimated cost of $42.6 million.
For natural hazards, a home buyout is often the last and most expensive resort to avoid the risk of costly cleanup and rescue efforts. In early 2012, the city of Juneau, Alaska, commissioned a study on an avalanche-prone neighborhood, where warming temperatures were loosening massive mountainside snowdrifts and putting homeowners in danger. The study recommended several options, including a controlled release of snow, metal barriers, road closings, and finally home buyouts, which would have the city buying the homes and demolishing them.
Through a federal program, the Federal Emergency Management Agency funds home buyouts administered by states and communities. The agency provides 75 percent of the cost, which in most cases involves the risk of damage or loss of life in flood- or fire-prone areas. By law, the bought-out homes cannot be sold again; the property must remain public and undeveloped, and in many cases is used to create amenities such as parks or wildlife refuges. The program is voluntary for the homeowners, but owners wishing to keep their homes may be required to mitigate their risk, or purchase additional homeowner's insurance.
Commercial Home Buyouts
"Home buyout" has another meaning in the housing market, one based on a business contract between the homeowner and a private home buyout company. In a commercial home buyout, you agree to allow the other party to take over the sale of your home. The contract with the home buyout seller may guarantee a minimum sales price (expressed as a percentage of the market value). You retain ownership of the home until it sells. If it doesn't sell by a deadline, which you set, then the home buyout seller agrees to buy the home at a pre-determined price from you.
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