Updated: Jan 7, 2021
After listing your house for sale, the offers will start to roll in. They should, at least, so long as you did everything you can to offer up a great listing.
There's nothing more exciting than receiving that first offer for your house. It's vindication that all your hard work has paid off.
But if you and your agent are expecting to get multiple offers, whether at the same time or spread out over a few weeks, how do you know which is the right offer to pick?
Picking the right offer for your house isn't always as straightforward as going with the highest price.
The price might be all that matters to you
Maybe you need the shortest escrow period possible
Or, perhaps you just want peace of mind that the deal will close, regardless of the length of escrow
Selecting the right offer is a bit more nuanced, depending on your situation and goals.
So, the first thing you need to do is determine your goals before selling the house.
Knowing your goals will help you pick the best offer.
Consider The Offer Price
The first thing most people consider is the offer price. And typically, the closer the offer price is to the asking price, the better.
But, if you have multiple offers to consider, it would be unwise to accept the offer with the highest price without looking at everything else first.
Many factors can reduce the amount of money you'd make behind the scenes, which we'll discuss below.
Consider The Contingencies
Purchase and sale agreements often come with a bunch of contingencies.
Buyers have the option to include:
Home sale contingency
They can even add their own contingencies in the special stipulations section of the agreement
Generally speaking, the fewer contingencies, the more likely the sale is to close.
But there's no way to know for sure. A couple with every contingency in their offer may be more likely to close vs. the guy with one contingency because it's their dream house, and the other guy just kind of likes it.
Here's what each contingency allows:
Inspection contingency: Buyers have the right to order a professional home inspection.
Within a given amount of time, the buyers will order said inspection, and the inspector will create a detailed report based on what they find in the property.
Inspectors are trained to call out most general issues, but may recommend a specialized inspector for problems that involve:
Or other major systems
Once the buyers receive the report, they can use the contingency to pull out of the deal if they don't like the results.
Hopefully, instead of backing out, they ask you to make some repairs to keep the deal alive.
Something to consider is home inspection contingencies can act as a catch-all for buyers to back out.
Even if they are happy with the results, they may change their mind for a different reason.
Let's say they found a house that better matched their needs during the inspection period.
The buyers just need to cite something in the inspection, and technically they will be entirely within their rights to back out and leave you high and dry.
Appraisal contingency: An appraisal contingency is straight forward. All it means is the agreement is contingent upon the appraisal coming back either at or above the contract price.
Should the appraisal fall short of the contract price, all hope is not lost.
You can lower the price to meet the appraised value, or you can ask the buyer to bring more cash to the closing table.
Most likely, you'll be asked to reduce the price.
Financing contingency: A financing contingency makes the offer contingent upon a buyer being able to receive a mortgage.
If for any reason, the buyer is unable to qualify for the financing necessary to purchase the property, they can back out of the deal without penalty.
Home sale contingency: Home sale contingencies are not too favorable for the seller.
A home sale contingency allows a buyer to lock your property up until their property sells or doesn't sell.
For example: If you sign a contract with a buyer to close in 30 days, and their offer is contingent upon their house selling within those 30 days, what happens if their house doesn't sell?
You can either renegotiate the closing date with them or walk away from the deal.
If they don't have a strong listing or are overpriced, you put yourself at risk since their house may be unlikely to sell.
Consider The Closing Date
Are you pressed for time? You must consider the closing date the buyers put in their offer.
In my personal experience, I've had escrow periods as short as 14 days, and I've had escrow periods as long as two months.
If you're in a hurry, it may be best to accept an offer with a shorter escrow period.
Even if the offer price is a little lower than the asking price, and even if you received another offer at a higher price, but an extended escrow period.
Maybe you're pressed for time because:
You had a job transfer, and want to sell the house before you move
It's possible you inherited property, and do not want to be responsible for it
Maybe you're trying to time a 1031-exchange
Whatever the case may be, if time is of the essence, you must heavily consider the closing date presented in the offer.
Consider if The Offer is Cash or Financing
An important thing to consider is whether an offer is all-cash or financing.
If someone offers you $500,000 for your house in cash, and someone else offers you $500,000, but they're taking out a conventional loan, you'll still get the same amount of money at closing.
However, cash offers come with a little less risk than offers with financing.
You most likely won't run into this, as most buyers take out loans, but we'll discuss it just in case.
The difference between cash offers and offers that include financing are the contingencies.
Cash offers are not subject to a financing contingency
Which means they don't need to order an appraisal and include an appraisal contingency (They might just have to verify the value of the house though)
And you don't have to wait for a buyers mortgage to be approved
If you're choosing between a cash and financing offer, be sure to do these two things:
Verify your buyer has the cash in their name in an account ready to go. You can do this with bank statements.
Verify your financed buyer is pre-qualified. You can accomplish this by asking for a pre-qualification letter and calling the lender to verify.
It's not uncommon for cash buyers to ask for a little discount, so just be aware of that.
Consider if The Loan is Conventional, FHA, VA, or USDA
When buyers are taking out a mortgage to buy the property, they have several options.
USDA (For rural properties)
Not all these loans are created equal, and here's why that matters to you.
FHA, VA, and USDA loans all come with an additional set of lending guidelines, while conventional mortgages are a bit more forgiving.
What do I mean by that?
For example, a buyer using an FHA loan will have to get an FHA approved appraiser to view the property. VA loans follow a similar process.
An FHA appraiser will scrutinize a property to make sure it meets the minimum standards.
One of the FHA's minimum standards is that the property must be considered safe.
So, if a handrail was missing, for example, and an FHA appraiser deemed this to make the property unsafe, they would require the handrail to be repaired before the loan could close.
A conventional loan would not care about a missing handrail. But an FHA loan would need the missing handrail to be installed before it could close.
If your house requires a little TLC, it may not meet FHA guidelines.
That's not a deal-breaker, though, as all you'd have to do is make the necessary repairs to bring the house up to the FHA minimum standards, and the deal could move forward.
If you'd prefer to reduce the chances of being mandated to do repairs, choosing a conventional offer may be the right move for you.
Check if Your Buyers Are Pre-Qualified
Should your buyers submit an offer with financing, you must make 100% sure they are sufficiently pre-qualified.
I would only allow buyers to submit offers if they have their pre-qualification.
Thankfully, checking if buyers are pre-qualified is pretty easy.
All you have to do is ask for a letter from their lender.
You can even call their lender up and ask any questions you may have.
Consider The Amount of Concessions Requested
One thing often not considered is the number of concessions requested.
Let's consider two offers, both identical in most of their terms:
Both offers are full price
Both have the same contingencies
Both have the same closing date
BUT! One offer is requesting $20,000 worth of concessions, while the other is asking for only $5,000 worth of concessions.
Concessions come in a few forms.
Repair credits based on inspection results
Down payment assistance
Help with other associated closing costs
Regardless of what they are, they lead to you getting less money.
I've heard of buyers requesting concessions of up to 6% of the purchase price.
That's a lot!
Make sure you carefully review how much is being requested in seller concessions, as this could significantly affect your bottom line.
Miscellaneous Tip When Negotiating Offers
There's no guarantee this will work, but it's something we've successfully done in the past.
It never hurts to have additional negotiating tools in your tool belt.
Let's consider a hypothetical buyer who is requesting a significant amount of concessions. We'll say $10,000.
However, you only want to give $5,000 worth of concessions.
The buyer may be relying on your contribution of $10,000 to close the deal, as they are low on funds. And they will not be able to close without the full $10,000.
Instead of letting the deal die, you can suggest to the buyer raising the price of the house by $5,000.
By doing so, you can now contribute the full $10,000 concession while netting the same amount of money.
Again, this may not always work, but it's worth a shot if it comes down to it.
Consider The Amount of Repairs Requested
Any buyer can request you make repairs, so consider the cost of the repairs each buyer is asking for while considering your offers.
Additionally, If your home requires a lot of work, you're going to want to cater to a particular type of buyer. That buyer most likely being an investor.
Make sure you accept an offer that's Inline with the home's condition.
As we discussed earlier, FHA and VA buyers must adhere to stricter guidelines. So if you accept an offer with FHA financing, but your house falls far outside the minimum standards, you're likely shooting yourself in the foot.
Consider The Amount of Earnest Money
The last thing you should consider is the amount of earnest money a buyer is putting down.
Earnest money is a good faith deposit.
If the buyer doesn't properly execute on their side of the contract, you may be entitled to keep their earnest money.
If you have two buyers, one who offers $500 in earnest money, and another who puts up $10,000 in earnest money, who do you think is the more serious buyer?
That's right! The one with the higher deposit is likely to be more serious.
Consider Selling To A Professional Home Buyer Like Contenza Properties
There certainly are a lot of things to consider when picking an offer.
The offer price
And many more
If fussing around with a bunch of offers doesn't sound like your type of fun, we get it.
Did you know you can receive an offer from a professional, direct home buyer like Contenza Properties?
When you sel