Several people have recently told me that there is an area realtor running radio commercials where she guarantees that she will sell your home or she will buy it from you. This was news to me only because I don’t listen to AM radio. What’s not news to me is the concept, which has actually been around for quite a while. It’s called a Guaranteed Sale Program.
The high level concept is simple enough. If the realtor can’t sell your house within a specified period of time then they buy the home from you at a specified price. Sound too good to be true? You bet! Let me count the many ways.
The Biggest Problem With Guaranteed Sale Programs
I first learned about these programs when I was studying for my realtor exam 9 years ago. While they are legal, provided the realtor follows a few simple rules like specifying the terms in writing, our instructor actually discouraged this practice because of the ethical conflict involved.
You see…the whole program hinges on the price at which the realtor promises to buy the house. Now, the home seller obviously wants the highest price possible for their home. But the realtor is naturally going to want the guaranteed purchase price to be as low as possible, right? Yet, the seller is looking to the realtor for advice on what their home is worth. What are the odds that they are going to get good advice from the realtor? About as good as winning that $1.6 B Powerball a few weeks ago. It's a win for the real estate agent.
The Other Gotchas In A Guaranteed Sale Program
But the ethical problems with these programs are just the beginning. All of these programs come with a multitude of conditions that are contained in some kind of written contract between the real estate agent and the home seller. Here is just one example of a Guaranteed Sale Agreement from a real estate brokerage in Lawrence, Kansas.
As in that sample agreement the most common condition is that the seller has to agree up front to a regular schedule of price reductions if the house doesn't sell within certain time frames. For instance, there might be a price reduction every 2 weeks for some period of time and those price reductions are locked in - e.g. you can have someone bidding on your house and technically you are required to drop your price right in the middle of those negotiations. How many home sellers are going to be willing to agree to that?
Here is a sample of some of the other requirements that may or may not be in one of these contracts:
- Seller has to buy their next home using this realtor
- Seller has to buy one of the homes this realtor is listing
- Seller has to pay the realtor an additional commission on the purchase of their next home if not one of the realtor's listings
- Seller has to buy a more expensive home than the one they are selling
- Seller must pay the realtor a 6% or higher commission
- Seller must get an inspection done prior to listing and must make all reasonable repairs indicated in the inspection report. Keep in mind that inspections are typically very detailed and it's not unusual for them to identify 50 or more issues that "need attention"
- Seller must get a staging assessment and must follow the recommendations of the stager, which could include the rental of thousands of dollars of furniture.
- The guaranteed purchase is subject to an appraisal at or above the guaranteed purchase price. If the appraisal comes in lower than that then the purchase price is lowered or the guarantee is cancelled.
- Seller will buy a home warranty on the property for the agent if they purchase it
- The guaranteed price might be automatically discounted by some percentage of the "market value", which of course is determined by the realtor.
- Homes above a certain price point may be excluded from the program
Think this list is long enough? It's a win for the real estate agent.
So How Many People Go With A Guaranteed Sale Program?
Guess what. The realtor offering one of these programs doesn't care how many people actually go with the program. And based on all the restrictions and fine print who in their right mind would seriously purse such an option anyway? Getting people to sign up for it isn’t the goal. The real goal is to generate leads.
It’s sort of a bait and switch scam. Someone calls up to find out more about the program and once they find out all the details they are unlikely to want to pursue it. But now the home seller has invested all this time with the realtor and the realtor understands their situation and has had an opportunity to present their accomplishments so it’s pretty easy to use high pressure sales tactics to convert them to a regular seller. It's a win for the real estate agent.
How To Explore A Guaranteed Sale Program Without Getting Sucked In
If you're really curious about a program like this my advice is to simply call up the real estate agent advertising the offer and requesting the term sheet/ contract you would have to sign. They'll probably resist just sending it to you without an extensive conversation or a meeting but I don't see how they could simply refuse to give it to you.
But once you get it in your hands you can quickly review the multitude of conditions that will surely be there and then you can make an informed decision without any high pressure sales tactics to see if this is something you would really be interested in. I'd be surprised if you really wanted to pursue it.
Something else occurs to me. If you are a buyer considering a home marketed by a realtor who offers a guaranteed sale program and you see regular price drops taking place then there is a good chance that that home is being sold under one of these programs. As such that is a huge flag that the seller and realtor are both desperate and you should be able to get the upper hand in any negotiations!
#Realtors #RealEstateAgents #GuaranteedSale #RealEstate #HomeSelling
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.