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:
- Offer you less than market value as a GBO price.
- 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!