Is downsizing right for me

Agents Promise to Buy Your Home… Gimmick or Good?

We have all heard it… Agents promising to buy your house if they don’t sell it. Sounds almost too good to be true right? Let’s jump straight to the conclusions and then explain:• There is lots of fine print to the guarantee.

  • Many agents offer the guarantee.
  • Most agents never end up buying houses because of the guarantee.
  • Most sellers think the guarantee sounds fantastic.
  • Agents don’t actually want to buy your home and tie up their own money; therefore, their incentive is to sell your home as quickly as possible even if it’s below market value.
  • The asking price must be gradually decreased systematically after it is listed before the guarantee kicks in.
  • The seller must agree to a price for which the agent will buy the house, which is oftentimes lower than market value.
  • The real estate commission is typically higher (5% to the listing agent, 3% to the buyer agent, instead of 3% to both parties).

I first heard this offer about eight years ago on the radio. Recently, I heard a similar radio advertisement stating the agent will “…sell your home or buy it at an agreed-upon price.” I went to the agent’s website and here are some of their “guaranteed sold” program conditions:

  • The seller must use the agent to buy a home.
  • The property must be appraised, inspected, and repaired (if appropriate) by professionals selected by the agent, and to the agent’s liking.
  • Due to location, the property may not even be eligible for the “guarantee sold” program.
  • The “guarantee sold” program does not apply to homes that appraise for more than $300,000.
  • Seller agrees to pay an 8% commission on the sale.
  • The listing period must be no shorter than 18 months.
  • Seller agrees to provide a testimonial.

That’s a lot of fine print to break down. Admittedly, this is one local website, but a review of agents with similar programs reveals very similar conditions. So let’s break this down…

Condition 1: The seller must use the agent to buy a home
The website does not specify any time limitations. Plus, what is the commission structure for this representation? And what if your experience with the agent when selling your home was not good, but you now are forced to use the agent again to help buy a house? And what if you are moving out of state after selling your house… the agent can’t represent you in that state unless they are licensed there, which is very unlikely. Sure, these questions may be answered upon examination of the “guarantee sold” agreement, but why not answer these questions on the agent’s website? Even so, we start to see that things are not quite as they sound.

Condition 2: The property must be appraised, inspected, repaired…
Typically, the agent will decide who to use for the appraisal and inspection with the “guarantee sold” program and charge it to the seller. But this is not normal. It’s the Buyer who hires an inspector and pays for an appraisal (through their lending party). But you, the seller, must pay for these service up front to get the “guarantee sold” program. So, right off the bat, things smell fishy. And what about “repaired?” To what condition must things be repaired? Who knows, the agent may instruct the inspector (who he chose), to highlight certain conditions of the inspection that would normally make the house sell slower, but are not technically deficient.

Condition 3: Your home may not be eligible based on location
The agent may be willing to sell your home regardless of location (assuming in-state property) under traditional commission but when it comes to the “guarantee sale” program, your house may not qualify. This is probably due to the expenses necessary to service a property located too many miles away from where the agent is located should the agent decide to purchase the home and rent it out.

Condition 4: Your home may be too expensive
This condition is certainly understandable, as not every agent can afford every home, but it sure would be helpful to say this in the radio commercial. The Tennessee Real Estate Commission (TREC) states, “The mission of the Tennessee Real Estate Commission is to protect the public through establishment and administration of minimum requirements for candidates and licensees, effective professional education of licensees and enforcement of professional conduct.” The agent’s claim, without additional clarification, seems to contradict TREC’s mission statement, so it seems a little shady at best.

Condition 5: Seller agrees to pay an 8% commission on the sale
It’s simple math. As a seller, you’ve just given the agent more than twice his standard commission. Let’s back up to a traditional sale: 3% commission for the listing agent and 3% for the buyer agent for a total of 6% commission. With the “guarantee sale” program, the buyer is now the listing agent, and is eligible for the commission on that side of the transaction. So, the listing agent who buys your home now gets the total 8% commission, instead of just 3% in the standard sale model. This extra 5% to the listing agent is cash in his pocket. But you, the seller, have just paid an extra 2% (8% – 6%) to the listing agent for this “guarantee sold” program. Was it worth it?  Probably not!

Condition 6: The listing period must be no shorter than 18 months
18 months? Do you have 18 months to sell your home? Once the 18 months elapses, another 2 months will be needed to close the sale. So, 20 months at least. During the 18 months, the agent will likely systematically reduce the sales price according to a pre-approved pricing plan (for example, reduce the sales price by 1% per month). Eighteen months is a long time in the real estate industry. In a seller’s market, 18 months can result in significant price changes. So, if the agent and seller agree to a certain “guarantee sold” price, in 18 months, the agreed price can be significantly lower than market value, which helps the buyer (the agent) and not the seller (you).

Condition 7: Seller agrees to provide a testimonial
This should be a red flag. Sure, you can provide a testimonial. But the agent has the final option to publish it on his website or not. If it’s a positive testimonial, you can bet it will be published on the website. If it’s a negative response, don’t think it will be published. Incidentally, upon searching for the testimonials on this agent’s website, no testimonials could be found. This indicates the testimonials were not positive or there were no testimonials (i.e., the agent never had to buy a house).

In conclusion, be sure to read the fine print and understand, if it sounds too good to be true, it probably isn’t true.