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C - Guaranteed Home Sale: What about agencies that offer a buyout?

               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 net a lot less money for this "generous" incentive.

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:

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

This concept is like an insurance policy in that it provides peace of mind to the anxious seller. This is especially true if you need to make an offer on your next home that is non-contingent and you are unable or unwilling 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 $219,900. 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. At the end of the 90 days, the owners, will sell their home to the agency (or agent) at the low end of the projected range, or $200,000. Done deal.

Not all houses are candidates:

This concept is a great marketing ploy for an agency to get their foot in the door. However, 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 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 poor marketing characteristics or resell concerns. The agency wouldn’t want to risk getting stuck in their buyout with a white elephant.

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 “ buy-out" 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.”

Of course the agency will point out that someone will undoubtedly purchase your home above the buyout price. Surely your home is worth it, right? The program works as a safety net in the event of an economic downturn.

Can you say leverage?

Note that the agent who lists your home in this program is also the same agent who is selling you your next home. After all, you’re not going to get offered this deal unless you are also buying from the same person. In other words, the agent is banking on getting a lot of commission profit between your buy and sell transactions. And in these “Buy this house and I’ll buy yours” circumstances, this agent is usually selling you one of his or her own listings–more commission income for the agent and the agency.

After the buyout, guess which agent gets to relist your house, get the listing commission and potentially sell it himself or herself? Even more commission. The agent could sell it for a nice profit too. Did you ever wonder where all this commission money is coming from?

In any event, making the agency rich gives you some serious 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 is negotiable. Why pay 5% if other agencies will do it for less?

• If the agent is so confident that your home will sell above the buyout, then don’t forget to negotiate a commission discount if the buyout is not needed. In other words, don’t get caught up in this program and forget about getting a discount for a “normal” sale of your home.

• 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 new 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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