Over the last few months, Charlotte has become inundated with offers from real estate brokers and investors offering to either sell their home or purchase the home from the owner directly. Neither strategy is all that new however how it’s being marketed is – as a preferable alternative to traditionally selling your home to an open market. Tomorrow, I’ll explain how the direct home buyer approach works so today, let’s look at what is meant by a “Guaranteed Home Sale.”
In the real estate industry, the pitch of offering to purchase ones home if the agent doesn’t sell it is the “Guaranteed Sale.” It’s been around for a long time, pushed by real estate coaches and marketing companies as a way to make the phone ring. Does it work? Yes. Is it beneficial to the homeowner? No.
What is Meant by the Guaranteed Sale?
In all of the advertisements, the pitch goes something like ‘if I can’t sell the home in x days, I’ll buy it’. Sounds attractive – like someone is putting their money where their mouth is. However, this isn’t the case. As I learned first hand at a real estate conference where this model was being pushed, the Guaranteed Sale is less about actually purchasing the home but getting the Seller to reveal what price they would actually take for their home. The guaranteed sale price isn’t market value and it comes with additional fees including the cost to re-market the house, cost to make any necessary improvements to assist in the sale and the cost to acquire it. Combined, these fees can amount to 9-11%.
So on a home were the guaranteed sale purchase price is $300,000, the additional fees can account for $30,000 less dollars in the owner’s pocket. So, knowing that $270,000 would be acceptable to the owner, the agent can go back to the owner at a later time and demand a price reduction that would net the seller slightly more than $270,000. The Seller had already laid their cards on the table with someone they thought they could trust so they’re in a corner.
Why Investors Love the Guaranteed Sale
When the housing market was in decline, the motive of the Guaranteed Sale was reveal the Seller’s bottom dollar price. Today, with Charlotte and the surrounding areas in a housing shortage, many of these agents utilizing the Guaranteed Sale approach represent (or have access to) large investor buyers. These investors have an acquisition criteria with millions to spend so it works as a win-win for the agent: they get the list the house and sell it to one of their clients with a quick turn-around. Double commissions (sometimes)! This is the part I’ve always had trouble with.
Dual Agency is the idea that a real estate firm can represent both Buyer and Seller on the same transaction, provided that no confidential information is shared from one party to the other. Not only is it legal in North and South Carolina, individual agents can represent both Buyer and Seller, not just two agents within the same firm. So, my problem is if an agent with an investor client in their pocket goes into a listing appointment under the guise of listing the home to gather confidential information, they’ve violated dual agency but the Seller is none the wiser. Is it illegal? No Is it shady AF? YES!
What About Cancelling The Listing Agreement at Any Time?
While the standard South Carolina listing agreement makes no mention of the ability to terminate the agreement, the standard North Carolina form does. However, the standard North Carolina listing agreement makes clear that, while the Seller may terminate the listing agreement early, they are still under contract with the listing firm throughout the original expiration date.
At our firm, our policy is to allow our clients to terminate any of our agreements prior to contract without further obligation. While this doesn’t happen often, it doesn’t make much sense to us to hold a client hostage if they no longer want our representation.
It is important that you clarify this policy with any firm you hire to represent you as all will handle this differently. You can also ask that it is clarified in the contract if you have genuine concerns.
So What Then?
The Guaranteed Sale hook; is it a legitimate offer? Maybe – depends on the agent and who they are representing other than you. Will a guaranteed sale result in more money in your pocket than a traditional sale? Usually not. The additional fees baked in to the guaranteed sale price would be far would result in a lower sales price than exposing the house to the market.