I have a question about the guaranteed sale programs, such as the agent promises to sell in X number of days or he'll buy it. What's the basic idea behind those? It seems like a very risky proposition unless the promised purchase price is very low compared to the market, or guaranteed number of days is very high.

Has anyone used this technique or knows someone who did? I searched this forum but couldn't find anything.

Thinking of trying it out, but I wanted to see what others think. Thanks!

Well here is what my partner and I are doing ( just started) the guaranteee is the market evaluation price based on comparable sales, minus 6% commission (wich is the only way you get the guarantee) minus 2% list to sales ratio for our mls minus 2% admin fee. So as you see it will be about 90% of the list price, we feel that this is fair as the commission and list to sales ratio are not being recouped by the vendor anyway so the admin fee is the only added expense. We ask for a 90 day window to bring them an offer that would be more then the guarantee. It is simple really, we only offer this on our own listings that the buyer is buying but we are considering it on any house we have for sale.

I used to work for a major franchise which used a guaranteed sales program and have had quite a bit of training with it. Your post on the subject exhibits the same cautious skepticism that sellers usually exhibit too so if you do offer such a program then I'd say the first thing to do is to expect the skeptism :-).

In another part of your post you come close to the principal behind the program when you state they would have to place it at a very low price or it would be risky. The ERA franchise would get very, very upset with a broker if they ever ended up buying the property because the program was designed to guarentee the SALE of the property, not the purchase of it. If ERA ended up having to purchase the property after an intense, guarenteed sales program such as this then, in their own words, they would have paid too much. That was usually a trial close in the presentation too.

Here is how the details used to work. The listing period, if I remember right, was a little bit longer than our typical listing was to allow time for the processes to be completed. Obviously it had to be an exclusive. Then they agreed to hire an outside appraiser. Some mechanism had to be in place to reach an agreement between the principals about the qualifications of the appraiser so the ERA corporate would keep a list prepared to present to the seller to choose from. The agents would also do a thorough CMA. They basically had to agree to list at a price within a maximum percentage above the appraised value plus agree to specified price reductions at regular intervals.

So, you were right that to avoid risk the broker could only agree to purchase it at a very low price. But the presentation of this to the seller clearly presennts to the seller the importance of proper pricing to the sales process. It acknowledges the fact that pricing is an inexact science (thus the original opportunity for them to list above the appraisal price) and shows them and prepares them in very solid terms the importance of monitoring the marketing campaigns effectiveness and being ready to make adjustments to it in a timely manner. By agreeing to the appraisal, CMA, price, price adjustments, and deadline the only objection left for the seller was how good was the marketing ability of the broker. The program presents a "best case-worse case" view of the entire marketing program that will be used to sell their property. As stated, a purchase by the broker is basically an acknowledgement by the broker of their failure to market the property as outlined.

How much lower was the final price? It would vary depending on a lot of factors. Basically it was a corporate decision and the local franchise merely used it as a listing tool and helped gather the data such as the CMA, market conditions, etc for corporate. Corporate would gather up the data and make an offer just like any other buyer would. If I had to come up with a ball park figure I remember it being around 80%. There is some legal interaction also between the two contracts (the listing agreement and the guarenteed sales program) but the details of that elude me now and is something you should consult an attorney about. I vaguely remember the listing agreement could stand by itself while the guarenteed sales was contingent upon having the listing and the proper terms. This arrangement would allow them to list at any price while the CMA and Appraisals were completed and the offer was returned from corporate. It might be 45 days before the offer was returned right about the time a price reduction would be in order anyway if it hadn't sold yet. I think there was a non-refundable fee submitted with the application too.

So, during the listing period there may have been four to six 5% price reductions. The thinking was there was a snake in the grass somewhere if a correctly appraised property, being properly marketed, could go through those price reductions without being sold. If it ended up being offered at 80% of appraised value and didn't sell the the buyer did, in fact pay too much. Think about it. If you listed ALL your listings at 80% and they hit the MLS at that price how many wouldn't sell? None I bet, unless the original appraisal was so far off that 80% was still overpriced. That is why corporate got so upset if they ended up buying one. They new they had gotten taken.

I used to enjoy using the presentation because it was a great educational tool to show the sellers all the factors involved in marketing a property and the sales person comes out looking quite professional.

thanks for the info, guys! Btw, Chad, what do you mean by this last sentence? And 90% seems still somewhat risky. I guess you'll have to use your own judgement as to what price you can buy it at so that you can still resell it.

Also, I imagine sellers are going to wonder as to the legal validity of any such contract you sign with them, since it's not a standard State contract form. What guarantee do sellers have that this offer is enforceable?

RESynergy,

I thought about this program the same way you describe. The bottom line is, if nobody else wants this home even after all reasonable efforts have been made to sell it (and MLS + good photos should be enough 99% of the time) then why would the broker want it?

In simple terms, this is just like an insurance policy for the seller, nothing else, and since the agent/broker is taking a risk, they have to have some kind of price advantage.

Someone once told me that these programs are designed to make the phone ring and nothing more, LOL, so I guess that's probably true most of the time.

The last sentence means that unless you are buying one of my listings then this is not offered to you, however we are thinking of offering it to anyone with a home to sell. As for 90% being risky, I am in a good sellers market where over 75% of the listings sell the first time for about 98.3% of asking so if it is priced properly to begin with then buying it for 10% under market value is no problem. Remember you get to decide what homes qualify so if it is a dump then don't agree to do it. Also if they refuse more then 2 showings for any reason then it is null and void. You can add more conditions as you see fit but the idea is to not make it a gimmck. The likelyhood of buying it in my market is slim and if we do then so be it because we can sell it quickly for that price or rent it out.

somethings new to learn

"In simple terms, this is just like an insurance policy for the seller, nothing else, and since the agent/broker is taking a risk, they have to have some kind of price advantage."

I venture that the agency that is making such an offer is receiving something for their risk already. They are receiving "marketing advantage".

Both the advantage and the cost, however, are either intangible, highly variable, or a combination of both.

Included in the "cost" however(in the program as I descibed it) is the aquisition cost of the property. Regardless of the risk assessment made by the broker ahead of time, it is always based on the inexact science of appraisal and the highly unpredictable market.

As I said, once an offer to purchase a property for $xxx,xxx in 6 months is made by an agency it is an enforcable contract. It is a form of insurance to the seller. Part of the "premium" they pay the broker is a series of price reductions. How much does it cost a broker to have over priced listings in the inventory? How about time spent with a client trying to convince them to do a price reduction?

We used to often refer to it as a guaranteed sale program, stressing and teaching the importance of proper pricing, regular re-assessment of the marketing effort, correction if required at a later date (because appraisal is an inexact science and markets change). This whole process, IMHO, is a system to systematically provide professional service. At the end, theresults for the broker being wrong are more than just monetary, they reflect on the agents marketing ability. Perhaps that is why the main office would get so bent out of shape if they had to buy them.

The local ERA does this. I haven't read the fine print yet. My old broker at KW does this too but Texas is a tough market. Lots of good homes don't sell where we're at ... there's just too much supply.

So, the he pitches it is like this "I'm an investor. I buy properties at *wholesale* prices. This is about 20% below market. Blah Blah Blah" In a nutshell, he's covering the odds buy buying at about 75% below market value ... which makes for a good deal on the buy. Plus, the seller would almost certainly NOT let it go for that cheap so he doesn't have to buy it. It's a win-win for him.

Ultimately, the goal is to get people to list with you. This appraoch, while cheesy, gets people to call for appointments and ultimately converts to listings. The only drawback is that you have to actually WANT to buy their house and you have to be able to qualify for it. If not, you're begging for a lawsuit.

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Hello
[quote=Saodavi;110547]
but Texas is a tough market. Lots of good homes don't sell where we're at ... there's just too much supply.[/QOUTE]

Not to wrangle about semantics, but the reason they don't sell is because they are priced too high. Want proof, put them on the market for $1 ea and watch em move.
I think the pre-agreed price reductions are the key to making it not a "win-win" situation for the broker. If there were a series of price reductions to 75% of market value, and it DIDN't sell, there was somehing serious defective with the brokers marketing, or his "market" price is pie-in-the-sky. In the later case, if he bought it, he probably was the highest bidder anyway. Fortunately, he "earns" a commission too when he buys it :-).

Ultimately the goal is to get the place sold for the best possible price.