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A REX Agreement is an equity-financing tool developed by Real Estate Equity Exchange and Company (REX & Co.) that enables homeowners to convert their home equity into cash. Under a REX Agreement, REX & Co. acquires the option to share in a percentage of the future increase or decrease in the home's value. Homeowners, in turn, can receive an advance payment of 13 percent of their home's value.

Unlike debt-financed instruments such as home equity lines of credit, the REX Agreement does not require monthly payments or interest. It also does not accumulate interest as in a reverse mortgage.

How it works
Rex and Co. negotiates an option with a homeowner. This option will include some cash now and additional cash later, in exchange for a percentage of ownership in the property. For example, a homeowner with a home worth $1MM could theoretically obtain $100,000 from Rex and Co. in exchange for a 40% stake in the home's future appreciation or depreciation. In this example, Rex and Co. will purchase a 40% option in the home for $100,000 in cash and $300,000 to be paid at closing. Here is a look at a sales transaction five years or more in the future:

Sales Price Gain/Loss Homeowner Share REX share Homeowner Gross REX payout Homeowner net
$1,100,000 $100,000 $60,000 $40,000 $960,000 $100,000 $1,060,000
$1,000,000 $0 $0 $0 $900,000 $100,000 $1,000,000
$900,000 ($100,000) ($60,000) ($40,000) $840,000 $100,000 $940,000

As of May 22nd, REX Agreements were only available in eight states: California, Colorado, Illinois, Florida, New Jersey, North Carolina, Virginia, and Washington state. Only homes that are single-family, detached residences can qualify for the REX Agreement. It must also be a primary residence. In order to qualify homeowners cannot have a loan to value (LTV) ratio greater than 75%. A REX agreement provides for an early exit penalty to any homeowner that sells, refinances or otherwise attempts to close the option on the home within the first five years. The penalties are 25% in year 1, 20% in year 2, 15% in year 3, 10% in year 4 and 5% in year 5.