Choosing the Right Offer

In today’s sellers’ market, homes that are priced appropriately and show well very often receive multiple offers. This is great news for sellers – the more offers you have to choose from, the better chance you have of getting a higher price and more favorable terms. However, reviewing multiple offers can sometimes be a stressful process. It can be difficult to decide which potential buyer is going to be the best choice to proceed into escrow with when you are overwhelmed by ten or more offers. Luckily, part of your listing agent’s job is to break down each offer and explain to you the pros and cons of each potential scenario. Here are a few of the elements that you will need to consider with each offer and some tips to help you as you make a final choice.

Price

Obviously the goal of every seller is to get the highest price for his or her home. However, the offer with the highest price may not necessarily always be the best choice. It’s important to remember that you want to work with a buyer who is going to be able to successfully close escrow with hopefully the least amount of concessions on your part. If the buyers with the highest price have the riskiest financial package, it might be worth considering taking a lower offer with a more secure loan scenario. Sellers will sometimes accept all cash offers that are lower than financed offers because they are generally perceived to be easier and quicker to close.

Loan

The lending community has made a determination that buyers who put less than 20% are considered “riskier candidates” for a loan. That is why any buyer who is borrowing more than 80% is required to carry private mortgage insurance. In the grand scheme of things, it doesn’t matter if the buyer is putting 3% down or 50% down – as long as the loan goes through, the sellers will get their money. However, it is often perceived that buyers who put less money down have less money in reserve. This can mean that they don’t have additional money to put down in the case of a low appraisal, and it can mean that they may be stricter about negotiating credits or repairs. In addition, some low down payment loan programs – such as FHA and VA loans – have stricter requirements about the condition of the home. This can sometimes mean that sellers will need to agree to pay for repairs before close of escrow in order for the loan to be approved.

When considering the strength of a buyer’s loan scenario, it is also important to consider who their lender is and what kind of approval they have been given. Certain lenders are known for being slow with their processing times or for working with more conservative appraisal companies. If the buyer is working with a mortgage broker, they may not even know yet which institution will be lending them their funds. This is why some listing agents require that buyers present an approval letter from a “direct lender” rather than a mortgage broker.

Contingencies

In general, sellers benefit from buyers making their contingency periods as short as possible. It is particularly helpful to sellers for buyers to cut their inspection contingency to 7 or 10 days. The inspection contingency is the most broad contingency – it typically gives the buyer the most opportunities to back out – so the quicker that contingency is lifted, the more secure the seller can feel about the deal going through. In multiple offer scenarios, you will sometime find buyers who are willing to remove their appraisal contingencies entirely. This is a huge benefit to sellers because without the appraisal contingency, buyers are unable to walk away from the sale based on a low appraisal.

When sorting through multiple offers, it is important to identify any offers that may be written contingent upon the buyers selling their current home. If you accept a contingent offer from a buyer who needs to sell his or her home, you are agreeing to wait until the buyer’s home sells before you can close on your own sale. How risky this is to you as a seller is dependent largely upon whether the buyer’s house is already on the market (or hopefully already in escrow). Some buyers may be willing to pay a higher price for your home in exchange for you agreeing to accept a contingent offer – so that is another element to consider when you are ranking the strength of your offers.

There many other elements of a buyer’s offer that can effect you as a seller, including their desired length of escrow, whether or not they are requesting that you pay any of their closing costs, and items they’d like you to include in the sale. Each part of the offer needs to be carefully considered as you decide how to respond. Your listing agent will help you sort through each element to make sure nothing has been overlooked. Remember that even if it takes you several hours to talk through all your offers, sellers who receive multiple offers on their home are usually in a great position to negotiate a high price and favorable terms.