Guaranteed Sale: Everything You Need to Know
A guaranteed sale is where a real estate agency agrees to purchase a property from the seller for a specific amount if it goes unsold for a certain time period.3 min read
2. Cautions of Guaranteed Sale
3. Best Practices
A guaranteed sale is a type of real estate agreement in which a real estate agency agrees to purchase a property from the seller for a specific amount if it goes unsold for a certain time period. Also called a guaranteed purchase contract, this type of listing agreement typically represents a significant decrease from the property's original listing price.
This type of contract is used as a profitable marketing strategy which provides the seller with a valuable guarantee and gives the agency an edge over competitors. However, it's important to read the fine print before moving forward with a guaranteed sale contract.
Advantages of Guaranteed Sale
If you're a real estate agent, using guaranteed sale as a marketing promotion will typically work in your favor. Some of the benefits of this tactic include:
- Low-risk lead generation; even though many of the leads may not use this program, you've already gathered their information and started the conversation, which can still lead to a sales contract.
- Provides peace of mind for sellers by giving them a specific deadline by which their home will be sold. This helps them avoid the limbo of searching for a new home while trying to sell their former property.
For this type of contract to work well, however, the terms of the guaranteed purchase must be fair to the seller. Seller advantages of this type of contract include the following:
- If you're looking for another home, you may worry that you'll find the perfect property before your existing house sells, meaning you'll either lose out on your dream home or get stuck paying two mortgages. A guaranteed sales contract can help you solve this issue if you're OK with the home selling for less than market value.
- The agency will continue to market your home until the guaranteed sale date since it's in their best interest to find a buyer.
It's important to closely review the terms of the agreement before signing.
Cautions of Guaranteed Sale
This type of promotion can come off as a gimmick, which may promote distrust in potential clients. Because they are asking you to sell one of their most valuable assets, they need to feel sure that you are acting in their best interests.
You can change this perception by ensuring that the contract provides the seller with a fair deal. Taking a sky-high commission percentage or purchasing the home for a price well below market value gives the seller the short end of the stick--and you'll lose out on the referrals and positive reviews they may have provided.
It's also important to understand the personal risk and be prepared to purchase the property if it does not sell. The smaller your agency, the higher your individual risk. If you work for a top-producing team, you're more likely to have access to capital to buy and resell the property quickly.
In addition, this program should only be offered to a limited number of buyers; if none of the houses sell, you are in danger of breaching the contract.
- Be reasonable when creating the contract, especially when it comes to the fine print. Many guaranteed sale contracts list the house slightly below market value (3 to 5 percent) and deduct it by an additional 5 to 10 percent every 30 days. If the house hasn't sold when the contract expires, the agency will purchase it for less than 70 percent of the market value. Keep in mind that if you go too low, you'll generate revenue but will damage goodwill with the client. He or she is unlikely to use your services again or recommend you to friends and family.
- Consider a variation of this type of contract in which you sell the house for free if it isn't sold in a specific amount of time.
- Make sure you can deliver on the promises you're offering. These contracts work best for top-producing real estate teams because they usually sell the house without having to buy it themselves. Take an honest look at your track record of selling homes within 30, 60, or 90 days and use this data to structure a reasonable contract.
If you need help with a guaranteed sale contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.