If you’ve never heard of a guaranteed sale program, this post will help you identify one. They are full of rules and caveats and more of a bait and switch than anything I know of. Frankly they are horrible for home sellers.
The bait and switch concept is this. The Guaranteed Sale Program is dangled in front of you. You bite the bait and call the broker offering it. Then because you do not like the terms and conditions you are switched over to a regular sale program.
The goal of the broker is to get inside your front door because most sellers hire the first agent they talk to.
Identify a Guaranteed Sale Program
Here are a couple of examples:
- I sell your property in 59 days or less or I’ll buy it.
- I sell your property in 30/60/90 days or I sell it for free.
Either sound pretty good right? Then the broker might wow you with a list of things they will do to market your home and compare to other agents. This part of the bait is awful and has no respect or honesty for what other brokers do. The list explains what most do not do and what the broker does and how can you possible resist. The reality is they paint the other brokers as being lazy and useless. In the majority of instances that is just not true.
Note: In the event the broker advertising a guaranteed sale program, had put a name of another broker on that list, they would be committing an Ethics violation.
Is this the kind of broker you want working for you? There’s certainly no honesty.
Illinois Investigates These Programs in Depth!
When a real estate brokerage is audited by the state of Illinois, which they do regularly; one of the questions asked is whether the brokerage offers a guaranteed sale program.
Because they are bad for consumers, they rarely fully explain the program and don’t care if it’s not in the best interests of a seller.
With so many complaints it’s no wonder they get critiqued by the licensing bodies of the state of IL!
Conditions and Caveats of a Guaranteed Sale Program
The broker making the offer of any Guaranteed Sale Program must explain everything to you. If they are publishing it online, all the conditions must be fully published. Here are a few examples of conditions that may be added to a guaranteed sale program.
- You must agree to a fair marketing price at the start.
- You must agree to pre-determined price reductions, both amounts and periods of time.
- You agree to pay for property staging at the behest of the broker.
- You may have to agree to remove wallpaper and re-paint the house.
- If you refuse the first offer under a guaranteed sale program, the program is withdrawn.
- If we don’t sell your home in the 59 days, we’ll pay you 75% of the marketing price.
- Luxury homes don’t qualify for a guaranteed sale program!
Let’s look at the reasons why these conditions are added and how it is not good for a home seller. (In the same order).
- Who determines the fair market price? Likely you have little or no say in it and will be pushed to a lower price than you expected.
- Price reductions should not be needed if your marketing price is already lower than the recent sales.
- Staging is not cheap, think upwards of $2000 for a median sized home. And what about all your furniture?
- Is this really necessary? Sometimes it may be but often not.
- Maybe the offer was ridiculously low, even 76% of your asking price. this is your brokers easy way out!
- 75c on the dollar is something nearly all home sellers are not willing to accept.
- Define luxury. This condition is far too lose of a definition. But of course luxury is not included because the broker knows his guarantee is going to fail.
When you consider these conditions you’ll fast come to the realization that a guaranteed sale program is not in your best interests. It’s almost as bad as the ads we see for we buy ugly houses. They’ll only offer you the wholesale amount of 65% of the market value.
Under any guaranteed sale agreement you are likely paying a higher compensation rate than under a regular sale with the same broker.
Just think about all the money going into the brokers pocket.
Verify and Check. Substantiate Capability.
If you are tempted to sign up for a guaranteed sale program, think about this:
- Does the broker have sufficient financial resources to buy your home? Most do not and are banking on a quick exit for any number of other conditions. But they got in your door and will persuade you to list with them anyway.
- What is the track record of the broker/ does this look even remotely possible?
- What is the current market times for homes in your area?
- Has the broker every actually bought a home under a program like this?
- What happens if the broker cannot make good on the promise?
- How long is your agreement? Are they locking you in to three years!
I do know of a few good brokers with a guaranteed house sale program that do stand by the “I’ll buy it” promise and have bought several properties, but this seems to be rare. After all, any guaranteed offer program like this requires cash in hand, or the ability to borrow. Something most brokers don’t have.
Make sure any broker signing you up has the financial ability to back up the offer! Pre-approve them just like we pre-approve other buyers.
Conflict of Interest
A sellers broker should have one very specific goal in mind when representing you – get the most money for your home and in the shortest period of time! This should be based on your local real estate market, and compared to recent similar sales.
Any broker you hire under a guaranteed sale program is essentially offering to do the exact opposite.
The person buying your property needs to be able to turn it right around and make a profit off you. And don’t forget that they’ll pocket two lots of commission from buying your property under a guaranteed sale program. You still pay full commission for the sale, then they need to recoup the commission they must pay a buyers agent to re-sell. It’s a win win for the broker, a lose lose for you!
Hiring A Better Class of Broker
There’s the old saying you get what you pay for. We’ve all experienced it.
- Interview at least three listing agents and find one that has an extensive marketing program.
- Look for a broker with experience selling your kind of property.
- Selecting the busiest broker is not always the best choice.
- Selected a local broker is a wise decision.
- Find someone you feel you’ll be comfortable working with and communication with.
- Don’t be afraid of newbies, they tend to work harder.
A Review of a Local Guaranteed Sale Program
Ethically I cannot post names of brokers or the brokerage and I would not do so anyway. However I was curious enough to take a look at some raw data for a broker that offered a guaranteed sale program. As a member of the MLS in which I work I can review a lot of numbers. So I looked up a 60 day guaranteed sale program.
- I found the average days on market for that broker was 134 days. More than twice what he actually offers.
- I found all of the brokers sales averaged 92% of asking price, much less than the current 95% average for most brokers.
- I found no sales at 75% or close to an assumed buy percentage of a similar amount. (Estimated under a guaranteed sale program.)
With this data it’s fair to say the broker never bought a property! So the bait and switch was played in full force and the home sellers were bamboozled into hiring said broker.
The guaranteed sale program played expertly and horribly!