How To Choose The Best Offer On Your Home
Selling your home can be a stressful process. While working with real estate professionals can alleviate some of the anxiety, you may find that their knowledge and experience don’t make up for their hefty commissions. For those brave souls who decide to go it alone, this article is here to help!
You may think that if you’ve researched previous sales of comparable properties within your area and priced your home fairly, the hard part is over. Think again. Choosing the best offer on your home can be just as tricky as determining what to ask for it.
It’s important to remember that most offers you receive will come in below asking price. So, before you can adequately judge an offer, you first need to have a clear understanding of your needs. Make sure you’ve considered your financial responsibilities before weighing offers so you know the lowest price you’re willing and able to accept.
Selling a home is rarely as simple as choosing the highest offer, so it’s crucial to think about the compromises you’re willing to make to get the deal done. If you haven’t done this theoretical work ahead of time, you run the risk of letting your emotions color decisions that should be made with logic.
If you’re trying to decide which offer to accept on your home, here are a few considerations that you should keep in mind.
How To Judge An Offer
After you’ve mulled over your finances and determined what’s most important to you, you’ll need to evaluate the offers you receive. When doing so, you should keep in mind that the highest offer isn’t always the best. Here’s a list of factors that are necessary to weigh when assessing which offer is worth accepting.
Offer Price Vs. Net Proceeds
When reviewing offer prices, don’t get distracted by the number. The offer price isn’t the amount of money you’ll be walking away with. You must read offers in full to determine whether there are concessions that the buyer is asking you to make. These concessions may come in the form of closing costs, broker’s commissions, repair costs after a home inspection, etc. Subtract these costs from the offer price to determine how much money you’ll actually be receiving at the end of the transaction. Only by understanding the net proceeds of the sale can you judge which offer is the best.
When it comes to judging offers, you have to consider the financial strength of each buyer. If a buyer makes an offer that is higher than he or she can ultimately afford, it’s the seller who will lose out in the end. Just because a buyer is prequalified for a loan doesn’t mean that he or she will necessarily be able to obtain the loan. Although banks will check buyers’ credit and get a median credit score to determine buyers’ qualifications, they only provide an estimate of buyers’ finances.
To ensure that buyers are qualified to purchase your home, check that they are preapproved for a loan. The preapproval process is far more rigorous than the prequalification process because it requires verification of buyers’ income and assets.
There isn’t much that’s more frustrating than rejecting promising offers in favor of one that turns out to be unrealistic. If a buyer isn’t preapproved, you should consider rejecting his or her offer.
The best offers to accept tend to be all-cash offers. When a buyer can pay for your home in cash, you can rest assured that the offer won’t fall through due to problems with financing. Without the need for financing, closings are faster. Regardless of your circumstances, the more efficient the closing, the faster you’ll have money in your pocket and the more seamless it will be to move on to the next phase of your life.
Because of the speed and security of these transactions, some sellers may be more inclined to accept lower offers that are all-cash over higher offers that require financing. However, the fact that a buyer offers to pay cash doesn’t mean they necessarily have the funds. If a buyer makes an all-cash offer, make sure you ask for proof of funds. The last thing you want is to accept a lower offer only to find that the buyer can’t honor it.
When reviewing offers, you must pay close attention to contingencies buyers want to include in the contract. These contingencies are conditions or actions that a buyer requires in order to close the sale. If these stipulations are agreed to but not met, a buyer has the ability to walk away from the contract.
Among the most common of these provisions is the mortgage clause. If the buyer requests this clause, it means that the sale is contingent upon the buyer’s ability to obtain a loan. While this stipulation may seem reasonable, it has been known to cause sales to fall through. Even if a buyer is preapproved for a loan, they may not be able to get the exact amount that is needed to purchase your home.
One of the major hiccups that can occur with financing is an appraisal that comes in below the purchase price. Appraisals verify the value of properties, but in a seller’s market, property prices can be inflated, causing appraisals to come in far lower than offer prices. When there is a significant distinction between the value of a property and its purchase price, buyers with a mortgage clause can pull out of the contract without repercussions, leaving you scrambling to find another qualified buyer.
Another critical contingency to look out for is the home sale contingency. With this contingency, buyers stipulate that the purchase of your home is dependent upon finding a buyer for theirs. This provision can be extremely problematic because there’s no way to ensure that their home will actually sell – and if their property doesn’t sell, yours won’t either.
When evaluating any offer, real estate broker Frances Dawson of HOMES of LKN, a RE/MAX affiliate, explains, “If the offer is contingent on the sale of the buyer’s property, get detailed information. Is it under contract, have inspections and repair negotiations been completed, has the appraisal been completed? If the property is newly on the market, or not yet on the market, it is very risky for the seller.”
So the fewer the number of contingencies stipulated by the buyer, the better the offer!
As a seller, you want to close the sale of your home as quickly as possible, especially if you’re looking to buy another property with the funds from the sale. Buyers, on the other hand, tend to prefer to extend the time frame, whether to finalize the sale of their own home or complete their due diligence.
Dawson advises sellers to consider their “timeline, work schedule, and travel plans” and keep in mind that the time frame is “typically 30 – 45 days, but in a cash closing this may occur within 30 days.”
If you know that time is of the essence, think about whether you would consider accepting a lower offer from a buyer who’s willing to close faster. Buyers can play all sorts of games to try to delay closing. And you have to keep in mind that the longer buyers draw out sales, the more leverage they have over you.
The longer a home is on the market, the harder it is to sell it. So if buyers ask to delay closing, make sure that their offer is serious because starting over after your home has been sitting on the market for a while can be detrimental to your sale.
What You Should Know About Bidding Wars
Bidding wars are most likely to occur in a seller’s market when inventory is lower. While every seller dreams of starting a bidding war on his or her property, the chances that buyers are going to be enthusiastic enough about the property to repeatedly outbid their competitors and drive up the price of the property remains quite slim. Still, there are some things you should know about bidding wars on the off chance that your home incites one.
How Do You Handle Multiple Offers During A Bidding War?
When handling multiple offers during a bidding war, you should judge each offer individually. Michael Kelczewski, a licensed REALTOR® with Brandywine Fine Properties Sotheby’s International Realty, suggests that you begin by “reviewing financial credentials and contingencies. Strong offers lacking multiple contingencies supported by strong financial qualifications should always be weighted highly.”
By reviewing the buyers’ qualifications and contingencies, you can determine which offers are not worth your time. After rejecting some of the offers on the table, you have a few options. You may find that one offer stands out above the rest – perhaps the buyer wants to close quickly or is willing to pay cash. If that’s the case, you should feel comfortable accepting it.
If not, you can choose a few of the most promising offers and begin to negotiate. This process can take time, so if you’re looking to get the deal done as soon as possible, you may instead elect to ask all potential buyers to submit their best and final offer. The best and final offer will entice buyers to submit offers that are higher and include more favorable terms for the seller. Such circumstances may lead buyers to waive contingencies or reduce closing time, but it can also cause some buyers to become frustrated and decide to walk away from the property altogether.
Why Should You Be Wary Of Bidding Wars?
In many ways, starting a bidding war can leave sellers in a precarious situation. You don’t want to try to drum up competition only to find the strategy backfires and buyers pull out, feeling disgruntled.
You can avoid some of the pitfalls of bidding wars by not getting greedy. Never delay your response to offers in order to motivate more buyers to make offers, and never use a bad offer to try to fish for a better one.
When it comes to a bidding war, you have to give more consideration to buyers’ finances. Some buyers will make high offers that are still contingent on a mortgage. If a buyer who requires financing makes an inflated offer, they will have difficulty getting the bank to hand over that money. Remember, lenders will insist on having the home appraised before agreeing to loan buyers funds. So if the property value is far lower than the offer price, you could find that your accepted offer was nothing more than a pipedream.
Is It Appropriate To Accept The First Offer Made On Your Home?
When you’re aiming to get the highest offer with the most favorable terms, it can be tough to envision taking the first offer submitted. However, sellers often find that the first offer was the best they received.
Licensed real estate broker and cofounder of Yoreevo James McGrath explains, “When sellers receive offers right after listing their home on the market, it can be tempting to get greedy and shoot for a higher offer. The rationale is if they got a strong offer so quickly, the property is desirable, and there are other buyers out there that haven’t seen it yet.”
This trap is easy to fall into, but you should keep in mind that buyers who show up to the first open house and make an offer promptly after are the most serious. McGrath points out, “They have their listing alerts set up, made it a priority to get to the first open house, have their documents in order, and are ready to submit an offer immediately. In other words, they’re buyers who will get the most value out of the house and therefore be willing to pay the most. Data backs this up – you’ll see the longer a listing takes to go into contract, the more of a discount to ask it ultimately sells.”
So the longer your property is on the market, the more challenging it will be to sell it. After your home has been on the market for 3 weeks, you’ll notice that interest in it tapers off. Properties that sit on the market appear tainted to most buyers. The notion is that if other buyers don’t want it, it’s not worth the asking price. So if you do get offers after your home has been on the market for a while, expect those offers to come in below the asking price.
To determine if you should accept an offer on your house or apartment, you need to understand the terms and risks. Selling your home comes down to deciding what you’re willing to give up in order to secure the deal that most closely matches your priorities. Everyone’s priorities are different, so what is right for one seller will not necessarily be right for another.
This article includes a lot of information, and your head may be spinning just reading it, let alone putting it into practice. If you find that you could use some help selling your home, we have the tools necessary to guide you through the process. Work with a personal Home Listing Coordinator, who will walk you through each step for a nominal fee or ask our experts any questions you have for free.
What About Buyers?
Don’t worry, buyers – we haven’t forgotten about you. Finding that dream home can be exciting but also exasperating. You want to make a competitive offer on the property, so it doesn’t slip away. But you don’t want to offer more than the house is worth or more than you can comfortably pay. Offers that are all-cash, able to close quickly and include the fewest contingencies tend to be the strongest. However, these options are not the only ways to strengthen your offer. Here are some tips to help you snag that ideal listing.
Research The Market To Determine How Much To Offer
Just because a seller is listing a property for a certain price doesn’t mean that the property is truly worth it. Before making an offer on any home, you should conduct a comparative market analysis on the neighborhood to figure out the true value of the property.
Start your search by looking at similar properties that have sold in and near the area within the last 6 months. When researching comparable sales, you may have difficulty finding homes that perfectly match the property you are interested in. That’s OK. Your research should just give you an idea of where the market is and how much you will need to offer in order to be considered.
If you’re having trouble, use this Pricing Scout to give you a better sense of what your offer should be.
Be Critical When Looking At The Comps
It’s crucial to look at market research when determining your offer price, but remember that comparable sales merely provide guidelines. Just because the property you’re interested in is the same size and in the same location as recent sales doesn’t mean that the homes are equal.
As you examine the comps, be sure to pay attention to the condition of homes sold. You don’t want to offer more money for a property that is in worse condition. On the other hand, if the property you’re interested in requires less work than those that have recently sold, you may want to increase your offer to reflect that difference.
You should also keep an eye out for how long the property has been on the market. If a property has been for sale for over a month, you should factor that into your offer price. Generally, buyers have more power to negotiate the asking price when a home has been sitting on the market.
Consider Your Personal Needs
Contingencies may make an offer less desirable, but if you don’t factor your needs into the offer, you may have trouble honoring it.
If you know that you can’t afford to pay for a property without selling your own home, you should include a home sale contingency. If you’re worried about a seller rejecting your offer because of it, you should consider listing your own home before you start searching for a new one.
When your home is under contract, you can submit an offer on the property with a home close contingency. Sellers prefer this contingency because it provides more security. Since you have already secured a buyer, there is a greater chance that you will have the money you need to complete the purchase of the seller’s home.
This same rule holds true for financing. Regardless of how sellers feel about provisions to the contract, you should still include a mortgage contingency clause in your offer. You don’t want to sign a contract only to find that you can’t get the loan you need to pay for the home. With or without the funds, you’ll still be held responsible for purchasing the home.
Instead of taking the risk and having to ultimately forfeit money, Michael Pinter, principal at LMPK Properties, recommends that you “consider taking a very short contingency period (e.g., 21 days) and in that time, if you push your lender, you can get an appraisal done and see if there will be any issues with your ability to get a loan. Also, consider a very short (or no) inspection contingency period.”
Pinter suggests you keep in mind that “most sellers’ main concern is that the buyer will tie up the house and then back out. Any way you can convey to them that you will close or, at the very least, will back out quickly, is a great way to make your offer more competitive.”
Consider Putting More Money In Escrow
A great strategy for convincing a seller to accept your offer is increasing the amount of money you offer to put down for the earnest money deposit. Earnest money deposits are the funds you put in escrow to demonstrate you are serious about buying the property.
David Reischer, attorney and CEO of LegalAdvice.com, explains, “Quite simply, the ‘earnest money’ deposit is a promise made to the home seller, just as a down payment is a promise to the lender. A buyer that offers a large earnest money deposit demonstrates a commitment to completing the sale of the property without external contingencies.”
The higher your earnest money deposit, the more competitive your offer will be. However, you should think carefully about how much to include. While these deposits can make your offer stand out, they can also put you at risk. If you pull out of a contract for any reason that isn’t stipulated in a contingency clause, the seller gets to keep these funds.
Make The Offer As Soon As Possible
When it comes to real estate transactions, time is always of the essence. So you should put in an offer as quickly as you can, especially if you’re buying a home in a market with low inventory.
Your goal should be to get your offer in before the floodgates open and the seller is inundated with other potential buyers. The faster you make an offer, the more likely it is that your offer will be accepted.
To avoid competing with other offers, you should have your documents ready to go. Most importantly, make sure that you have gotten an approval letter before submitting your offer. Getting preapproval signals to the seller that you are serious and actually able to buy the home.
If you haven’t gotten an approval letter yet, don’t worry. Quicken Loans®has your back! Through the Power Buying ProcessSM, Quicken Loans offers three levels of approval: Prequalified Approval, Verified ApprovalSMand RateShieldSMApproval.
While Prequalified Approval is the easiest to obtain, you may want to consider Verified ApprovalSM, which will verify your finances and provide sellers with the assurance that you will be able to obtain a loan. RateShieldSMApproval is a fantastic option, as it will not only verify your finances but also safeguard you against rising interest rates by allowing you to lock in your rate.
Feeling antsy? Get preapproved now and find out which homes you can afford with your budget. You can complete the entire process online through Rocket Mortgage® by Quicken Loans or speak to a dedicated Home Loan Expert over the phone by calling (888) 452-8179.