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The guaranteed Home Sale:

               OVERVIEW

Agencies or agents that offer to buy your home if they can't sell it can be a very appealing proposition. However, be prepared to potentially net a lot less money for this "generous" incentive. In this down market, it's rare that you'll find this guarantee sale being offered.

Even if you do, there are stipulations that must be met and you are advised to "read the fine print." With a lot of fees and commission on the table, you have some serious leverage that shouldn't be overlooked. 

 

A tempting offer:

“Buy this house and I’ll buy yours.” You’ve probably seen this rider on an agent’s for-sale sign. An agency, or sometimes a well-heeled agent, will offer to buy your home as an enticement to persuade a homeowner to buy their next home and not have to worry about the sale of their present house.

Like an insurance policy, this provides peace of mind to the anxious seller - especially if you need to make an offer on your next home that is non-contingent and you are unable to get a temporary or “bridge” loan on your next home.
How it typically works:
The agent will give the owner an expected selling range, for example, $200,000 to $215,000. The owner is encouraged to set an attractive asking price that is no more than slightly above the high end of the range, say $216,900. If it doesn’t sell in an agreed upon time period, such as 90 days, the buyout takes effect.

During the 90 days marketing period, timetables can be used to lower the asking price, such as each 30 days. After 90 days, the owners, will sell their home to the agency (or agent) at the low end of the projected range ($200,000 in this example). Done deal.
Not all houses are candidates:
The offer to do the buyout is often restricted to houses that are below a certain value (such as $300,000) in order to minimize the agency’s risk. Or it could be withheld from properties that have a marketing deficiency such as a questionable location, poor condition or homes that are in a price range with low demand or when a large number of competing homes are on the market, etc.

In other words, homes that are harder to sell do not qualify for this guaranteed sale arrangement if they exhibit resell concerns.
Getting to the bottom line:
In our example above, if the home has to be “bought out”, you can be sure the owners will pay a full commission on the $200,000 price. A 6% commission reduces the $200,000 gross to $188,000.

In addition, the agency will tack on a fee of from 1% to 5% for using this buyout option. This is to cover various expenses during their remarketing of the property. Therefore, subtract this fee from the $188,000 and the result is a net figure of from $186,120 (a 1% fee) down to $178,600 (a 5% fee).

The bottom line is that $178,600 is a far cry from the initial sound of, “Your home’s selling price could be as high as $215,000.”
You do have leverage:

The agency who lists your home in this program is also the same agency who is selling you your next home. The agency is banking on handling both your buy and sell transactions.

Providing the agency with two or more sales gives you some nice leverage here.

  • If the guaranteed buyout of your home appears unreasonably low, hold out for a higher buyout figure. They’ll listen. If your next home is new construction, the builder is probably involved and will have a lot of profit to play with from the house being sold to you.
  • The buy-out fee is also a number that could be negotiable.
  • If the agent is very confident that your home will sell above the buyout, you may want to negotiate a commission discount in the event a buyout is not needed.
  • Be sure you get an ironclad guarantee that the agent or agency will buy your home and that only you can back out of the deal without having to pay any fees or penalties.

Lastly, consult your attorney before signing anything.   

With their Sellers Security Plan, ERA became the first national real estate franchise to offer a buy out program. Details are on the:

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