Home Equity Agreement

A shared appreciation agreement (SAA) (also known as home equity agreement (HEA)) is a financial arrangement where a homeowner receives a lump sum of cash in exchange for a share of the future appreciation of their home’s value. This can be an attractive option for homeowners who need liquidity but want to avoid traditional loans or selling their property. SAAs must comply with state and federal regulations, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).

How It Works:

Initial Agreement

The homeowner and the investor agree on the terms, including the percentage of future appreciation the investor will receive and the amount of the lump sum payment. Unlike traditional loans, there are no monthly payments, which can ease cash flow constraints.

Lump Sum Payment

The investor provides the homeowner with a lump sum, which is typically a percentage of the home’s current value. Provides homeowners with access to capital without increasing debt or affecting credit scores. The lump sum received is generally not taxable as income, but the appreciation share paid to the investor may have tax implications.

Future Appreciation

When the home is sold or after a specified period, the homeowner repays the initial lump sum plus a percentage of the home’s appreciated value. The investor shares in the risk of the home’s value decreasing, as their return is tied to the home’s appreciation. According to the IRS Publication 523, Selling Your Home, the appreciation paid may be considered a capital gain.

Example: Suppose your home is worth $500,000, and you enter into an SAA for 10% of the future appreciation in exchange for $50,000. If the home appreciates to $600,000 when you sell it, the investor would receive the initial $50,000 plus 10% of the $100,000 appreciation, totaling $60,000.

Convert it to an interest rate before you sign — the illustration above is far too kind. An HEA has no stated rate, which is precisely why it is sold without one. Compute the implied rate yourself: you received $A$ today and will repay $S$ at exit in $T$ years, so

On the numbers above, $60,000 repaid on $50,000 advanced over five years is ${(1.2)}^{1∕5}-1=3.7\%$ — cheaper than a mortgage, which should tell you the example is not describing a real contract.

Two features of actual offerings, both absent from that illustration, do the damage:

The appreciation share far exceeds the advance share

Real agreements do not trade 10% of upside for 10% of value. Advancing roughly 10% of your home’s value commonly buys the investor something on the order of 25%–40% of the appreciation. Re-run the example at a 30% share: the investor collects $50,000 plus $30,000, so $S=\$80,000$, and the implied rate becomes ${(1.6)}^{1∕5}-1=9.9\%$.

The starting value is discounted

Most providers apply a “risk adjustment” that marks your home below its appraised value at origination — commonly 10%–20% — and measure appreciation from that lower number. You therefore owe a share of gains that never happened. With a 15% haircut on a $500,000 home, the baseline becomes $425,000, so a sale at $600,000 shows $175,000 of contractual “appreciation”, not $100,000. At a 30% share that is $52,500 plus the $50,000 advance, an implied ${(2.05)}^{1∕5}-1=15.4\%$.

And note where the rate lands if the house does nothing. Flat prices leave you repaying at least the advance — and, with a risk-adjusted starting value, potentially more — which means the product can charge you for appreciation in a market that had none. The genuine benefit is real and narrow: no monthly payment and no income qualification, which is why it exists for the cash-poor homeowner who cannot qualify for a HELOC. If you can qualify for a HELOC or an SBLOC, you are choosing a low-double-digit cost of capital over a single-digit one in exchange for deferring the payment. Do that knowingly or not at all.

This type of agreement is provided by companies like Point, Hometap, Unison, Unlock and others.