How The Guaranteed Home Sale Programs Work
In the last couple of years there has been rising popularity amongst Realtors offering a "Guaranteed Sale Program" or “I’ll Buy It For Cash” in other words it is a promise from the Realtor that if they can't sell your property within the allotted time period, they'll buy it from you.
This program can be very appealing for a property owner because it can often put you in a better position to buy your next property due to 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 (pencil) appraisal of the property. This can range from $200.00 to $400.00. This is usually a service that can be done by an experienced agent for approximately $100. and usually between the $50 - $75 range. 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 over inflated cost, ask you to remedy any deficiencies 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 deficiencies 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 70 to 85% of the so called appraisal value. 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 on the extremely conservative side to begin with. To translate this into hard numbers, if your property appraised at $250,000. this means they'll guarantee you a value range of $175,000 to $212,500. That’s a cost to you of $37,500 to $75,000.
3) Terms and conditions: Now 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 straddling their appraised value along with their pre approved price reductions every 30 days. In most cases if the property sells within this time period for more than the guaranteed price the home owner gets to keep the difference. 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 costs mentioned above, negotiating commission with the Realtor is typically out of the question. Companies that offer this program often charge full commissions or more in some cases. Commissions as you may know are split between the listing company and the Buyer's agent. For example; If you listed your property at 5% commission, the listing agent gets 2.5% and the Buyer's agent get 2.5%. But with a guarantee program the commissions are often higher with the listing agent often keeping the increased portion regardless if the guaranteed buy was exercised.
The funny thing about this program is that in almost all cases the Realtor never ends up having to buy the property because the structure of the program has forced you to price the home well below the current market value and repair all of the deficiencies making the property extremely marketable.
Now I'm not saying that a guaranteed program doesn't have its own place in helping you through this transition. 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 especially if you don’t care that your leaving thousands of dollars on the table that could have been used to put down on your new purchase.
The old saying "If it looks too good to be true then it probably isn't" certainly rings true with this program. My advice as a Real Estate professional is use 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.