Guaranteed Home Sale Programs in Northern Virginia Explained; Is There Consumer Value with these Guarantees?

What is a Guaranteed Home Sale Program? A Guaranteed Home Sale Program is a promise by a real estate agent to do something (usually sell a home within a specific time frame, or above a certain price) and if what’s promised doesn’t occur, then the agent guarantees to do something in return (usually sell your home for free, or even buy it themselves). The programs can be marketing eye candy for consumers. However, once a consumer better understands the conditions associated with the guarantees and remind themselves of the obvious – agents generally are not in the business of buying a seller’s home, nor are they in business to sell a home for free – then the value of these programs have a tendency to quickly disappear. Here are some of the programs currently marketed by certain agents in the Northern Virginia region.

  • We Guarantee to Sell Your Home in 60 Days, or We’ll Buy it!
  • We Guarantee the Sell Your Home in 60 Days, or We’ll Sell it for Free!
  • We Guarantee an Offer Within 24 Hours, or We’ll Sell it for Free!
  • We Guarantee You’ll Receive Your Listing Price, or We’ll Pay You the Difference!
  • We Promise a Record Setting Sale of Your Home, or We’ll Sell it for Free!
  • We Have Over 5,000 Qualified Buyers Waiting to Buy Your Home!

The programs are most often directed toward sellers. They are hyped on agent web sites and in direct mail campaigns. Some agents even go so far as to spend tens of thousands of dollars to advertise these promotions on local radio stations.

Why Do Agents Offer the Guarantees?
One of the keys to agent success is making contact with customers. Agents use various methods to generate leads and connect with customers. The lure of these Guaranteed Home Sale Programs and similar promises can be lucrative in generating leads. It sparks seller interest and initiates that coveted contact. Why is this a problem? Because this type of marketing strategy guides a seller to believe there’s great value where seldom any value exists. This is proven by comments from agents who actually market these guarantees.

In a recent Inman article, an agent of 12 years was quoted saying “I have not yet had to sell a house for free.” She added, “My home sale guarantee reeled in 26 of my 61 listings this year and all 26 declined the guarantee offer.” In the same Inman article, another agent with 13 years experience from the same brokerage, but in a different city, agreed, “I have never had to buy a house.” In fact, both agents agree that few people even pursue the guarantees. The programs are for lead generation, not to provide something of meaningful value to sellers.

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One could even point out that the advertisements are actually creatively sketched marketing strategies that appeal to certain behavioral biases we have as human beings. This is not unique to real estate, but with many advertisements we face as consumers almost daily. One such bias is called the Decoy Effect. For example, “We’ll Sell Your Home for Free” is to lure the seller into believing that they are getting a deal – something for free. Another human bias preyed upon is Loss Aversion. This is displayed by the “Promise of a Record Breaking Sale” leading the seller into believing they have something to lose by not pursuing the offer. Then there’s the commonly used FOMO – “Fear of Missing Out”. This one espouses the agent is so uniquely skilled and qualified that they are the only one positioned to sell the home for top dollar as evidenced by a guarantee that no other agent is confident enough to provide.

The Guaranteed Home Sale Program Often Comes at a High Cost to the Seller
I’ve read Guaranteed Sale Program Agreements. Unfortunately, the common theme among these programs can operate exactly counter to the advocacy of professional Realtors®. Professionals advocate seller control in the sale of their home as it should be. However, the foundation of these guarantee agreements require the seller to relinquish control to the agent. Listed below are some examples of the more commonly used terms in the agreements. I’ve added my cautionary comments as a professional agent who works hard to protect my seller’s best interests.

Condition #1 – Guaranteed Home Sale (or We’ll Sell it For Free)
The Seller will have to agree to a listing price as determined by the agent.

Problem for Seller – Cautionary Advice from a Professional Agent
Price is one of the most important aspects of selling a home and it should always remain in the complete control of the seller. However, one of the keys to the guarantee is the seller relinquishing price control to the agent. When confronted with the risk of selling a home for free, the agent has a naturally high tendency toward undervaluing
 the seller’s home to ensure a quick sale. In fact, the initial recommended listing price can be 90 to 95% of what’s generally considered fair market value. In the case of the agent facing the risk of having to buy the home, it’s even worse for the seller. The agent will usually have to target a purchase price of 60 to 65% below fair market value. A professional agent working with a seller’s best interests in mind wants the seller to always be in control of the price and we want to list and sell your home at nothing less than full market value (100%).

Condition #2 – Guaranteed Home Sale (or We’ll Sell it For Free)
The Seller agrees to stage the home, if requested.

Problem for Seller – Cautionary Advice from a Professional Agent
At the risk of either having to buy the home, or sell it for free, the agent of course has a strong natural tendency toward requesting the home be staged to maximize buyer interest. Staging is a seller expense in the thousands of dollars and could even be required if the seller already has the home furnished themselves, but just not in a manner acceptable to the agent. This is an option that can be easily invoked by the agent to disqualify the seller from the guarantee. Again the agent is in control, not the seller.

Condition #3 – Guaranteed Home Sale (or We’ll Sell it For Free)
The Seller agrees to paint, replace carpet and make any other improvements that are requested.

Problem for Seller – Cautionary Advice from a Professional Agent
Like staging, the agent will have a strong tendency toward recommending these improvements since a clean, fresh home attracts the widest group of buyers possible. It should be noted that a complete kitchen or bathroom remodel is considered an improvement in our business. This is another example of an option that can be easily invoked by the agent to have the seller spend tens of thousands of dollars in improvements, or face disqualification from the guarantee. 
Again the agent is in control, not the seller.

Condition #4 – Guaranteed Home Sale (or We’ll Sell it For Free)
Seller agrees to reduce the price if no offer is received within the first 10 showings, or if no offer is received within the first 3 weeks.

Problem for Seller – Cautionary Advice from a Professional Agent
This is yet another example of where price is out of seller control. The price reduction at this stage could be as high as 10% and it could occur as quickly as the first week if showings are active. A 10% price reduction can be 3 to 5 times greater than the average first price adjustment by the typical seller (2 to 3%) and it could be 4 times faster than the timing of when a seller typically considers an initial price adjustment. This is another example of an option that can be easily invoked by the agent to disqualify the seller from the guarantee.

Condition #5 – Guaranteed Home Sale (or We’ll Sell it For Free)
Seller agrees that the receipt of any offer, even if not acceptable by the seller, fulfills the obligations under the guarantee.

Problem for Seller – Cautionary Advice from a Professional Agent
Again, the same theme is in play here with the seller relinquishing control even in the face of an objectionable offer from a buyer.

Buy-Out Conditions – Guaranteed Home Sale (or We’ll Buy Your Home)
In respect to the buy-out guarantee, the seller is typically required to (i) list the home at 90 to 95% of fair market value, and (ii) make two price reductions of 10% each within the first 59 days. If the home still hasn’t sold, then the agent will offer to purchase the home at the reduced price, less the commission and less the cost of any repairs the agent believes the home needs which may have prevented the sale. Alternatively, the seller can agree to a steep discounted fixed price buy-out at the time of the listing.

Problem for Seller – Cautionary Advice from a Professional Agent
The buy-out guarantee is often financially worse for the seller. It can equate to the agent purchasing the home for 60 to 65% below fair market value. At this steep discount, the home becomes a profitable flipping opportunity for the agent.

The Key Takeaways
The Guaranteed Home Sale Program is predominantly a marketing strategy used to generate leads. The program is rarely found to produce compelling value for sellers, because the level of control and dollars that must be given up by the seller in the selling process is far too much to bear. This is why there is such a low incidence of sellers actually proceeding with the guarantee. There are far better ways for sellers to achieve their desired outcome and realize maximum selling benefits without the need to participate in a Guaranteed Home Sale Program.

As Realtors®, we are held to high ethical standards and a professional code of conduct. Being hired by a seller to sell their home, and likely safeguard their single largest asset, is an awesome privilege and responsibility. We have a fiduciary responsibility to sellers and must always exercise care, good judgment, protect their best interests and remain clear of conflicts of interests. How can an agent remain clear of conflicts of interests when fulfilling these types of guarantees? When an agent enters into a Guaranteed Home Sale Program it automatically begins a process that can run exactly counter to seller interests. The guarantees can cause agents to under-price a seller’s home, require a seller to perform unnecessary staging, even require a seller to incur the cost of unnecessary improvements or price reductions. The home buy-out option places the agent in the precarious position of representing both the seller’s best interests under the Listing Agreement and protecting the agent’s own best interests as the home buyer under the Guarantee Agreement. How can these two opposite positions co-exist? 

Naturally, if confronted with the risk of having to buy a seller’s home, or sell it for free, the agent (guarantor) could be compelled to do everything possible to maximize the probability of selling the home, even if it comes at great expense and inconvenience to the seller – or worse the relationship could even become adversarial. Sellers should exercise caution and thoroughly question these types of guarantees to ensure it best fits their particular situation.

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