How Guaranteed Sale Programs Work.

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In the last few years we’ve seen a real popularity amongst Realtors offering a “Guaranteed Sale Program” or in other words a promise from the Realtor that if he/she can’t sell your property within an alloted period of time, they’ll buy it from you.

This program can be very attractive as a home owner as this can often put you in a better position to buy your next property because the issue of selling your current property looks like its been resolved.

Sounds good right? Well maybe, but there’s a few things you should think about before you agree to this arrangement,

1) Upfront Costs. Most companies that offer this program ask you for some money up front which they’ll use to have a third party appraiser of their choice come out and do a market value appraisal of the property. This can range from $200.00 to $400.00. They also ask you to pay for a professional home inspection which can also range from $325.00 right up to $1000.00 and along with that ask you to remedy any difficiencies your property might have. So right away you’ve run up your costs to $600.00 (on the low side) and they still haven’t offered you a guarantee, never mind what the cost of your defiiciencies is going to run.

2) Discounted sale price. Now that the Realtor is armed with this information, he/she now is in a position to offer you his/her guarantee. In most cases that guarantee is for 90 to 95% of appraisal. Now keep in mind that appraisal was conducted with the premise that they want the property sold and closed within 90 days so it’s already an the conservative side to begin with. So to translate that into some hard numbers…. if your property appraised at $250,000. that means they’ll guarantee you a value range of $225,000 to $237,500. So that means a cost to you of $12,500 to $25,000.

3) Terms and conditions. So assuming you’ve agreed to everything so far, you now put your home on the market with very specific guidelines. You must list your home within a very tight range strattling the appraised value along with pre-approved price reductions every 30 days. Now in most cases if the property sells within this time period for more than the guaranteed price you the home owner get to keep the difference but one thing most people don’t realize is that if an offer comes in at the guaranteed price or greater and you don’t accept it the guarantee is null and void! This is often something that comes as a real shock to the homeowner.

4) Extra Commissions. Along with the cost mentioned so far, negotiating commission with the Realtor is typically out of the question as most companies that offer this program often charge you full tariff and them some. Commissions as most people know are split between that listing agent and the Buyer’s agent. So if you listed your property at 5% commission for example, that means your listing agent gets 2.5% and the Buyer’s agent get 2.5%. But with a guarantee the commissions are often 6% or even greater with the brokerage house often keeping the incresed portion regardless if the guaranteed buy was exercised or not.

What’s really funny about this program is that in most cases the Realtor never ends up having to buy the property because the structure of the program has forced you to price you home within it’s market value and repair any of it’s deffiencies making your property more liquidable.

Now I’m not saying that a guaranteed program doesn’t have it’s place in helping you through this tranistion. Let’s face it, with the sale of your home not being a condition in your next purchase, it does really help from a negotiating position with your purchase but these are all measures you can take yourself without having to put you in a position of losing control of your transaction.

The old saying “If it looks to good to be true then it probaly isn’t” certainly rings true with this program. My advice as a Real Estate professional is use the the program if you have to but don’t be lured by the smoke and mirrors and keep as much of your hard earned equity as you can.

Walter Monteiro.

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