Guaranteed Sales Agreements
Have you ever seen an ad from a real estate professional indicating they’ll guarantee the sale of your home OR they’ll buy it themselves?
What they’re likely advertising is called a guaranteed sales agreement and while they are allowed in Alberta, there are rules.
As a seller who may be attracted by such a promise, you need to know what the rules are and what you can expect through a guaranteed sales agreement.
A guaranteed sales agreement is when a brokerage guarantees to purchase a piece of real estate from a seller at a previously agreed upon price if it hasn’t sold to someone else before a certain date. Guaranteed sales agreements are sometimes offered to sellers who have their properties listed with the brokerage.
Why would I consider a guaranteed sales agreement?
If you’re selling your home to buy another home, you may be interested in a guaranteed sales agreement for the home you own now. This would mean you could avoid owning two homes and paying two mortgages if you take possession of your new home before a buyer comes forward for your current home. A guaranteed sales agreement may provide you with a bit more confidence in proceeding with your new home purchase before selling your current one.
There are, however, things that sellers need to know about guaranteed sales agreements.
There is no guaranteed sale unless offered by the brokerage
Individual industry professionals cannot offer or enter into a guaranteed sale agreement except on behalf of their brokerage.
Sales and marketing efforts for the seller’s property continue during the period of the seller’s listing
Even if a seller has entered into a guaranteed sales agreement with a brokerage, the brokerage will continue to market the seller’s property until the date of the guaranteed sale to the brokerage. It is to the mutual benefit to the seller and the seller’s brokerage to find a buyer during that period of time.
Brokerages that offer guaranteed sales programs are required to have policies in place relating to those programs
The brokerage policies should capture how the brokerage arrives at a guaranteed sales price and who’s in control of the property’s asking price during the listing period – it may not be the seller.
In any guaranteed sales program, the brokerage is going to attempt to minimize their risk. Sellers should review the terms of any guaranteed sales agreement very closely. There could be terms within the guaranteed sales agreement that affect the listing agreement (i.e. guaranteed sales agreement might call for a review of listing price at key points during the term of the listing). If a brokerage has a guaranteed sales program that calls for a review of listing price at certain points during the term of the listing, that detail must be included in the brokerage’s policies and must be communicated to the seller.
An offer to purchase on a guaranteed sale needs a few extra things
When a brokerage enters into a guaranteed sale:
- a purchase contract must be drawn up between the brokerage and the owner that outlines the purchase price, date of possession, and terms and conditions of the sale
- the brokerage must place 5% of the total purchase price into a separate trust account and release it from trust upon completion of the transaction
- the brokerage must hold the money in trust for the seller
Advertisements for a guaranteed sale must not be misleading
Guaranteed sale program advertisements often do not include how the brokerage calculates the price. The implication is the purchase price is based on the listing price or the property’s market value. This is usually not the case.
In most cases, the brokerage calculates the purchase price using a formula where the commissions, legal fees, carrying cost and commission on the resale are offset from the purchase price. When this type of formula is used, the brokerage:
- must disclose the purchase price formula or
- include the purchase price formula in the advertisement or
- direct the seller where it may be viewed at the brokerage’s website
The brokerage cannot charge commissions on a guaranteed sale
Brokerages may not charge commissions or deduct commissions from the purchase price on guaranteed sale agreements. Usually, an amount equal to what commissions would have been in a normal sale is considered when deciding upon the guaranteed sales price.