So basically a futures contract. As I suggested earlier to techcrium.licenced wrote: ↑Dec 13th, 2013 8:54 pmTechrium, that’s not a bad ‘how to short real estate’ idea. My thoughts on such is to:
1) find a homeowner who believes the market will crash
2) the homeowner and seller will agree on an independently appraised value. (AV)
3) the homeowner will choose a rate of decrease (D) and determine a future value. (FV)=AV(1-D)
4) the homeowner will choose an evaluation date by which the decrease must happen.
5) the parties draw up an agreement. 99% of ownership is turned over in trust to the short seller who in turn, places in trust, collateral equivalent to FV. Homeowner continues to be liable for all expenses.
Valuation is, of course, the problem. Even different appraisers will come up with different things. And a comprehensive formula would be needed to adjust for things such as maintenance, owner additions, owner damage/impairments, etc. that may influence the value.
I don't see why it would be. The problems largely turn on the whole issue of actually establishing a valuation for a single house. As opposed to using an index which presumably averages out far more samples and is less prone to manipulation by either side. After all, in the case you describe, it would be awfully easy to slip an appraiser a few bucks to change his 'opinion' one way or the other.The question is, would it be considered gambling or trading illegally under some law or other?
I understand what you're saying, its basically identical to a futures contract.Lot going on in the background so I hope I don’t have any formulas backwards.