“By-pass The Market”, “Guaranteed Offer”, “Streamline The Sale”, I say BEWARE!
Here lately, it seems I’m hearing more and more so called “Real Estate Professionals” touting home sales strategies that allow homeowners to “by-pass the market” or “streamline the sale”. When I hear these commercials or see these ads, I shake my head in disbelief. I’m skeptical of these “guaranteed offer” schemes because I know something about what’s happening that you as the homeowner may not be knowledge of. Let me explain.
First, a short lesson on the real estate market. As regulated as the real estate market is, we think of it as a free market or also known as a market economy. Your success selling your home for the most you can in the least amount of time is going to hinge on your understanding of the real estate market economy. You must know that in this type of market, self-interest and competition are the two most important forces that will directly impact your success. This has been true for over 200 years when an economist named Adam Smith described these two forces as foundational to the function of a free market.
Let’s first talk about self-interest. Why do you do what you do? Why do you go to the grocery store, why do you go to church, why do you go to school? You do all this because of self-interest. This isn’t a bad thing and in fact, it’s a good thing. Your self interest will hopefully lead to your personal gain. You go to the grocery store to get food and eat. You go to church for moral and spiritual guidance. You go to school to get a good job. You do all of these things to achieve the success you want out of life. Truth is, most everything in our society is a direct result of someone else’s or our own self-interest. Adam Smith sums it up really well in his book, The Wealth of Nations when he says..
“It is not from benevolence (generosity) of the butcher, the brewer, or the baker that we expect our dinner but, from their regard to their own interest.”
The point is, the butcher, brewer and baker do what they do to make the money to put food on their own table and in this way, they are acting in their own self-interest. While these three work for their own self-interest, they created a product that you find valuable and, in this way, we get the exchange of goods and services for money.
Secondly, we need to talk about competition. When two or more people compete for a product, like meat, beer or bread, the market keeps self interest that would lead to price gouging or corruption in check. This is directly because the competition for those products are also self-interested. To put a finer point on this, because here in Nashville we have a lot of local breweries, let’s talk beer. If I was a brewer, I would have to brew a beer that was better and cheaper than all the other brewers here in order to convince people to buy my beer over someone else’s. The lesson here is, in order to win your business, I would need to offer a better product at a reasonable price, in comparison to my competition. Granted, if I were the only brewer in 50 miles, I may be able to charge a higher price and care less about the quality of my beer but, I don’t think it would be long till someone else would spring up, offer a beer at a better price and better quality and drive me out of business.
Now that we have self-interest and competition well described, how does this impact you when considering one of these “streamline sales” or “guaranteed offer” schemes? Essentially, what these schemes are doing is keeping your home off the market. In fact, one Realtor here in Nashville advertises his scheme by saying, “Never put your home on the market…” When you do that, you remove self-interest and competition for your home. In other words, you aren’t getting what the market would give you for your home because the market doesn’t even know it’s for sale. Even worse, you are now giving a buyer exclusivity on your home or in other words, the buyer your working with is not competing and he knows it. Just like the example I gave about being the only brewer for 50 miles, he knows he’s the only buyer and his offer will reflect that accordingly. I assure you, 9 out of 10 times, an exclusive offer without market competition will be less in value and without desirable terms and conditions.
The next time you hear about some “Guaranteed Offer” or “Streamline Sales” or even worse “Never Put Your Home On The Market” scheme…..RUN! You will not get the most the market will bear, and you surely won’t receive desirable terms and conditions.