As Seen on TV: Beware of Guaranteed Real Estate Sales Programs

Carl in Home Buying, Home Selling Tips, Real Estate Trends

Ladies and gentlemen, I’m going to show you the greatest Real Estate brokerage offer ever made…all your investment and cashflow worries chopped to extinction without ever shedding a tear."

You have to hand it to the Real Estate brokerage industry for coming up with new, innovative and creative marketing gimmicks ideas.  There is simply no shortage of them.  If the trend continues, it won’t be long before we start seeing the debut of some local Realtors on late night television sharing valuable infomercial space with the likes of Ron Popeil and company.

One of my favourite gadgets to hit the real estate airwaves is the Guaranteed Real Estate Sales Program (GRESP), not to be confused with the Showtime Rotisserie or Pocket Fisherman.

The usual tagline reads something like this:

We will sell your house, or XYZ Realty will buy it! We Guarantee a Sale, Guarantee a Closing Date and best of all we Guarantee Market Value!

If you are worried about the sale of your home, don't be!  XYZ Realty has a program to relieve a seller's concerns about the sale and closing of their home. Think of it as an insurance policy or safety net against unforeseeable market changes that could effect how much and when you must sell your home. When you accept an offer from XYZ Realty, you are guaranteed that your house is sold and a closing date set in place. You are also given plenty of time to market your home and accept higher offers before closing with XYZ Realty, assuring you receive fair market value.

But wait, there’s more...

You benefit from any profit, we absorb any loss. If XYZ Realty ends up purchasing your house and then resells it for more, the net profits are returned to you.  But if XYZ Realty sells it for less, you don't take the loss, we do.

Now how much would you pay for all this?  Not 5%, Not 4%, not even 2% commission.


If you act now and XYZ Realty eventually buys your home, it will cost you NOTHING, ZILCH, NADA.  They just ask that you refer us to a friend so that we can get some word-of-mouth advertising.

Does all this sound too good to be true?  Let’s have a closer look.

The underlying appeal of this marketing pitch to a seller is that they can first proceed with a purchase without the concern of being able to sell their own home in a timely manner and at an acceptable price.  The offer to purchase would not require a condition to sell an existing home thereby making the offer much more attractive (all other things being equal) when compared to a competing offer.

Unfortunately, there’s a catch which comes in the form of the dreaded fine print.  The general terms and conditions which accompany these guarantees are often fraught with very specific stipulations on the one hand, and very ambiguous definitions on the other.

Consider the following which represent actual terms and conditions I've come across among Realtors (names and identities used below are fictitious):

1. You have to put an offer on a home listed with ABC Realty AND the Listing Agent (Name on the For Sale Sign) MUST be Mr. Joe Realtor.  A member of my team must be your agent and we must agree to Multiple Representation and fully understand Multiple Representation.

Commentary: 

This condition blatantly places the Realtor in an express conflict of interest by mandating multiple representation (or dual agency).  The ethical duty of care which the buyers and sellers are owed is essentially neglected in this situation.  Clearly, the Realtor’s only real interest here is his own.

2. You will receive an offer in writing on your home for 95% of the appraised value. Your home will be appraised by a certified appraiser, which most banks currently use and supported by our appraisal and/or our certified appraiser.

Commentary:

There are two very important issues here which merit careful attention. 

First, there is no clear definition of “value” which will form the basis of the appraisal.  Market value, investment value, insurable value and liquidation value are but four possible examples.  Each can be quite different than the next.  The issue is perhaps best exemplified by this link.

Second, it is important to understand who selects the appraiser to be used.  If ABC Realty makes the selection, there again is a clear conflict of interest.  Even if the seller agrees to this by way of written consent, it does not eliminate the concern.  It simply helps to protect the Realtor and ABC Realty from a prospective lawsuit.

3. Your home will be bought for the agreed amount (in writing) if it is NOT sold within 120 days of the listing.

Commentary: 

In this particular case, it is not clear what the original listing price on the home will be and if it differs from the agreed upon price guaranteed by the Realtor.  In some other cases I’ve seen, the seller must agree to regular price reductions (usually every 30 days) throughout the listing period.  So, for example, if the home is not sold in the first 30 days, the seller agrees to reduce the listing price by X%.  These reductions must take place in order to preserve the validity of the original GRESP contract. 

Also not clear are the transaction fees associated with the purchase.  Does the seller agree to pay for the Realtor’s legal closing costs, for example?  What about the original marketing expenses incurred by the Realtor?  Must the seller reimburse those?  All such questions are left unanswered in this case.

4.  You agree to list your home with my team at our set 6.5% commission rate.

Commentary:

Although there are no generally accepted commission rates within the real estate industry, the above commission rate is likely above the overall average.  Is this premium the cost of providing this GRESP?  Considering the overview I’ve presented here, a reasonable seller may very well be justified in asking for a discount, let alone charged a premium.  Depending on the specific details, this may just be an example of an expensive insurance policy.

5.  You must also move up (buy a home with a higher value than your current home).

Commentary:

Oh yes, let’s not forget the George Jefferson clause…our sellers will be “moving on up”. By the time ABC Realty is done with our sellers, the only thing that is sure to move upwards is company’s bank balance.

Conclusion:

If you are a seller that is concerned about the prospects for selling your home in a timely manner, you are urged to carefully read and understand the fine print of the terms and conditions associated with Guaranteed Real Estate Sale Programs (or GRESPs).  You might even go one step further and seek an independent legal review of any such contract prior to execution.

Unfortunately, I suspect that once executed, few of these programs allow for the late-night infomercial equivalent of a 30-day unconditional money-back guarantee.

I would love to offer complementary Ginsu knives in return for your comments, but you will have to settle for a lovely set of Please and Thank You’s.

Carl Minicucci is a Sales Representative at Humber Valley Realty (1997) Limited in Vaughan. Email Carl

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