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Guaranteed Buyouts Cost Sellers $$$$$

100 dollar bills

 

 

Guaranteed Buyouts Cost Sellers $$$$

One of our former clients in sent us an email today.  They are considering building a new home in Indianapolis and want to find a Realtor or builder who is willing to offer a Guaranteed Buy Out.  Are we interested?  Here was our response.....

 

 

 

We have never taken on a Guaranteed Buyout because we don’t feel it is in the best interests of our clients.  In essence, to provide a GBO we would have to hedge the risk of selling your home.  To do that we would have to offer less as a GBO price than the current market value.  For instance:  We might offer you 80% of your list price for your home if it doesn't sell within a particular time frame.

 

We have met with some of the best builders around Indianapolis.  Most of them are also hesitant to do a GBO, even if the “new” home is significantly higher priced.  There is a substantial amount of risk involved – particularly in the current real estate marketplace. 

 

Understandably, the idea of a GBO is very appealing to a seller– mostly because you won’t end up owning 2 homes at the same time at some point in the future.  However there is a cost to that reduced risk.   

 

In our experience the best way to reduce your cost and maximize your return is to hire a great agent and sell the home out right.  The housing market is very much like the financial market – it is very efficient and if it seems like too good of a deal it probably is.  If a builder is offering a GBO, the dollars are “still in there” – they just move to a different column on the spreadsheet.  A GBO requires a builder to assume the risk of selling your property.  Because the market is efficient they have one of two options:

  1.  Offer you less than market value as a GBO price.
  2.  Offer you market value, but add the “risk value” to the purchase price of the new home.

 

Either way there is a cost to you if the home doesn't sell in the designated time. 

You have several different options. 

 

 Aggressively market your home with an experienced agent, sell your home at a price you are comfortable accepting, then contract with a builder at the very best price you can negotiate. (May require a double move.

Accept a guaranteed buyout price that is significantly below market price, but know you won't own 2 homes at the same time. (From either a builder or broker who is willing to provide a GBO.)

Accept an inflated guaranteed buyout price from a builder and wonder how much just got added to the price of the new home.

 

We firmly believe that in order to get the best price on your new construction home in Indianapolis, you should negotiate the price independent of any discussion of a guaranteed buyout from a builder.  It's the same principle as negotiating a price on a new car without a trade in!  That way you can know for certain the true cost of your home and compare builders more accurately.  For the most part, our experience has shown that Guaranteed Buyouts Cost Sellers $$$.  Unless you happen to come across a broker or builder that doesn't know the market or is willing to agree to a buyout at market price.  In that case... they will usually end up keeping the home on the market for months after the buyout, accruing steep holding costs, leasing or selling at a significant loss.  In which case the GBO costs them $$$$ and you, the seller WIN!

 

 

 

 

Unless otherwise noted, blogs are authored by Tonda or Steve Hoagland

 

 

Comment balloon 2 commentsTonda & Steve Hoagland • July 28 2010 05:39PM

Comments

Steve and Tonda,

Great post. As a new home sales representative for 14 years, I can tell you first hand that there are benefits and negatives to GBO's. The real benefit has nothing to do with the GBO, the benefit is that the seller now looks at their home sale as a business transaction. They get very serious and real about the condition, deferred maintenance, and aggressive pricing. Nearly all of my clients who did GBO's with agents sold their homes very quickly and at market value. The negatives are simple...many GBO agents (very few left) charge extra fees not normally associated with a real estate transaction. The other negative is that often a seller has no choice but to accept any offer above the guaranteed buyout price as part of that contract.

As a realtor I wouldn't recomend them. Instead, get very real and aggressive with the condition, staging, and pricing. You will get your home sold quickly with fewer costs and more control!!

Posted by Matt Borushko, Carmel, Fishers and Noblesville Realtor (Keller Williams Realty) about 8 years ago

Hi Matt!

I agree.  If a seller prices competitively and does the staging/painting/maintenance/de-cluttering, etc their agent recommends to make their home stand out, our experience is their home will sell quickly and with fewer costs.  It's just not "guaranteed"!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) about 8 years ago

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