In business, a guaranteed sale can have two different meanings. Retailers and other businesses may make a contractual agreement where the wholesaler or manufacturer agrees to take back unsold goods at the end of a given period. This allows them to avoid paying for merchandise they do not sell. Real estate agents can offer another kind of guaranteed sale; if a home doesn’t sell by a time designated in the contract, the agency or broker is required to buy it. For sellers, this offers some assurance that a home will sell, but it can come with some disadvantages.
Guaranteed sale agreements are sometimes known as consignment sales. They can work in several ways. One option is for the manufacturer to send products without receiving payment. If the retailer can sell them, funds are sent to the manufacturer, less a small commission to compensate for displaying and selling the products. This is most commonly seen with works of art, or crafts made by artisans who don’t produce high volumes of work.
Alternatively, a guaranteed sale agreement may require payment up front, but the retailer can exchange or return unsold items. In exchanges, a new shipment is sent out for the retailer, which can be useful for activities like changing out seasonal products. Refunds allow the retailer to receive compensation for any unsold items. These agreements may come with other restrictions, depending on the terms, and it is important to read carefully in order to avoid unexpected liabilities.
Real estate contracts can offer a guaranteed sale clause. If the home doesn’t sell within the time period specified, after the agent has taken reasonable steps to represent it, price it fairly, and promote it to buyers, the agency or agent must buy it. The guaranteed sale price is usually lower than the list price and may be below market value. For sellers, this creates a distinct disadvantage.
Some people may not be in a position to wait for a home sale. They could need the money immediately, or might be trying to sell a home in association with a relocation, where they don’t want to end up with homes in two places. In these situations, a guaranteed sale may be an acceptable compromise. Before entering a real estate sales contract, it can be advisable to review all terms and conditions to make sure they are fully understood. An attorney can provide advice, including recommendations for revisions, to help people make sound legal choices.