Guaranteed Sales Agreements
| February 28, 2023
by Kristian Tzenov, RECA Regulatory Compliance Advisor, Real Estate Brokers
In times of market change, you may represent clients who are not confident their property will sell quickly. Particularly if they intend to purchase a new property, a guarantee that a client’s current home will be sold by a predetermined date may be a way to gain their confidence and retain their business. This type of arrangement is called a guaranteed sale.
In a guaranteed sale agreement, your brokerage makes a promise to a client, or a potential client, that the brokerage will guarantee the sale of their property at a predetermined price if the property does not sell to a third party by a specified date. It essentially provides the client, or potential client, with liquidity by guaranteeing that their property will be sold by a set date.
Before you consider using a guaranteed sales agreement, you must ensure that you follow the regulations and guidelines of guaranteed sales as outlined in the Real Estate Act and Rules.
Who can offer a Guaranteed Sale?
Guaranteed sales agreements can only be provided by real estate brokerages, not by individual real estate associates.
There are several requirements a brokerage must meet before they can offer a guaranteed sales program in compliance with the legislation. Brokerages and their associates must follow written policies and procedures and specific advertising guidelines. For instance, if a brokerage uses a specific price formula to calculate the guaranteed purchase price, (e.g., commissions, legal fees, carrying costs, etc., are deducted from the purchase price), all guaranteed sale advertising must include that formula, or the advertisement must direct the seller to where they can find it (a website, etc.,). If a pricing formula’s details are not transparent upfront, the guaranteed sale advertisement may mislead sellers into believing that the brokerage will use fair market value to establish a purchase price.
If a seller chooses to participate in the guaranteed sales agreement, there are also stipulations that brokerages need to follow regarding their property purchase.
Guaranteed sales purchases must:
- include a purchase contract (between the brokerage and the property owner) that outlines the purchase price, date of possession, and terms and conditions of the sale
- ensure that 5% of the total purchase price is placed into a separate trust account and released from trust upon completion of the sale
- not include any commission charged, including a deduction from the purchase price
The most important component in a guaranteed sales agreement is that the offer must be presented by and from the brokerage, meaning the brokerage is making the offer to purchase the property at a specific price if it does not sell by a specific date. An individual licensee can never make this offer.
If your brokerage offers a guaranteed sales program, speak to your broker, and ensure you understand the program details before you offer it to any clients.
If you are a broker who needs clarification on the rules and regulations governing a guaranteed sales program, please reach out to me at email@example.com.
For more information, please see RECA’s information bulletin on guaranteed sales.