The Ultimate Guide To Picking The Best Offer For Your House
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)