Definition
Viager is a real estate transaction arrangement primarily used in France, where a property is sold on a reverse annuity basis. Essentially, a buyer (as buyer or debirentier) pays a monthly sum to a seller (as seller or creditirentier) who typically lives on the property until their death. The principle of a Viager transaction is to convert a real estate property into pension by the property owner, while the buyer bets on the longevity of the seller.
Phonetic
The phonetics of the keyword “Viager” is /viːˈaʒər/.
Key Takeaways
- Viager is a property transaction method popular in France. It involves the purchase of a property from an older individual who can continue living in their property until their demise, while the buyer pays periodic transactions called Viager.
- The main benefit of this model is that it allows the seller to have a significant amount of monetary flow even while they are living in the property, making it an excellent financial arrangement for the elderly who don’t have substantial retirement savings. The buyer, on the other hand, may get the property at a lower price than the market rate.
- However, a major risk with this transaction is the longevity of the seller as longer the seller lives, the more the buyer has to pay. Hence, it’s imperative to weigh the pros and cons carefully before entering into a Viager transaction.
Importance
The business/finance term “Viager” holds importance as it is a unique real estate transaction predominantly used in France and few other European countries, providing a potentially affordable source of property acquisition. It involves an arrangement where a buyer, known as the “debitrent” , purchases a property from a seller, called the “credirent” , typically an elderly person, on an agreement to provide them with a regular income, usually until their death. This arrangement is financially beneficial for the seller as it provides them steady income especially during retirement, and it gives the buyer an opportunity to acquire property without the need for large upfront costs. Operating similarly to an annuity, the concept of Viager also assists in risk distribution, adding an interesting dimension to real estate and retirement planning.
Explanation
Viager is a unique real estate transaction prevalent in France, serving as an investment tool and a means to secure financial stability for both buyers and sellers. Its purpose is primarily twofold. Firstly, for the elderly population who may lack sufficient pension, it’s a way to secure additional income whilst residing in their homes. Secondly, for buyers, it offers an opportunity to invest in property, often at a lower overall cost than the market price.The essence of the viager concept is that a buyer (known as the ‘debtor’) purchases a property from a seller (the ‘annuitant’), typically an elderly person, but instead of immediately paying the full price, the buyer pays an upfront lump sum (‘bouquet’) followed by monthly payments (‘rentes’) for the rest of the seller’s life. This stream of payments ensures the seller a steady income. The buyer takes possession of the property only upon the death of the seller. Viager can be seen as a form of a life annuity for the seller and a potentially affordable property acquisition for the buyer.
Examples
1. “A Life’s Lease” in France: This real estate transaction became famous because of Jeanne Calment, who lived to be 122 years old. A lawyer in his forties, named Andre-Francois Raffray, agreed to pay Calment a monthly sum of 2,500 francs with the plan to inherit her apartment when she passed away. However, Calment outlived Raffray, and he ended up paying more than double the apartment’s value. This example was perfectly illustrating the risk factor associated with “Viager”.2. Sale of a house in Arles: A less famous, yet considerably practical example happened in Arles, France. A couple in their eighties sold their home via Viager. The buyer agreed to pay a certain sum of money each month for the rest of the sellers’ lives, in addition to an upfront fee. This way, the couple was able to secure a steady income in their retirement years while still living in their home.3. A Viager deal in Paris: A woman sold her apartment in a very desirable area of Paris through a Viager deal. The buyer agreed to pay her a ‘bouquet’ (initial amount), plus a monthly amount for the rest of her life. She was able to retain her right to live in the property, and the buyer, after her death, would claim the home. This arrangement gave her additional income without needing to leave her home.
Frequently Asked Questions(FAQ)
What is Viager?
Viager is a French real estate transaction where someone, usually an elderly person, sells their property for a discounted price in exchange for a lifetime monthly income. The buyer is betting the seller will die before the total of these payments equals the true value of the home, while the seller hopes to live long enough to profit from the deal.
Where did Viager originate from?
The Viager system originated in France and is a long-standing part of their real estate market. The term Viager comes from the Old French viage, which means duration of life.
Why would someone choose a Viager sale over a traditional property sale?
There are several reasons. The seller might need a steady income rather than a lump sum, which could be due to tax reasons, retirement purposes or simply a need for financial security. The buyer, on the other hand, might see it as a long-term real estate investment.
What happens if the seller lives longer than expected in a Viager agreement?
If the seller outlives the buyer, the payments still have to continue until the seller’s death. The buyer’s heirs inherit the obligation to continue making payments.
How is the Viager sale price determined?
The sale price of a Viager agreement is usually determined by the value of the property, the seller’s age and life expectancy, and the size of the monthly payments agreed upon.
Can the seller stay in the property after it has been sold under Viager?
Yes, typically in a Viager deal the seller retains the right to live in the property for the rest of their life, known as a life estate. This agreement must be clearly stated in the contract.
What happens if a Viager seller wants to vacate the property?
If a Viager seller decides to leave the property, the contract can be modified to allow the buyer to take possession before the seller’s death. However, this typically requires additional negotiations and payment.
What are the risks involved in a Viager transaction?
The main risk lies in the uncertainty of life expectancy. The buyer takes a gamble on the seller’s life span, which can result in either a bargain or an overpriced investment. For the seller, there’s the risk that the buyer may default on payments, which could lead to legal battles.
Related Finance Terms
- Annuity: A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.
- Life Tenancy: A type of agreement where an individual will have the right to occupy a property for the duration of their life.
- Lump Sum Payment: A large payment made all at once, often in lieu of smaller payments made over time.
- Real Estate Investment: The purchase of a future income stream from property or housing to make a return on investment through rental income and value appreciation.
- Estate Planning: Preparing or arranging for the disposal of an individual’s estate during their life in order to maximize the value of the estate for the beneficiaries.
