So, you have just received an offer on the sale of your home – Congrats! Now what should you do? Deciding between offers on your home, especially when you’ve received multiple, can be confusing and stressful. You may be tempted to immediately sign the first or highest offer received, but there’s more to consider than just the dollar amount before signing and going under contract. Here’s some expert advice from us on how to properly evaluate offers from prospective home buyers.
But First, Prepare Yourself:
Before you begin reviewing offers for your home, you should prepare yourself for what’s to come. That way, when the first offers come in, you’ll be able to make a better-informed decision as to whether you should accept, reject, or counter.
The first step in getting yourself prepared is understanding what to expect when you receive an offer to purchase your home. The best way to do this is by talking to your agent to learn how to read the Purchase Contract and familiarize yourself with what each section entails.
A Purchase Contract, also referred to as a Purchase and Sale Agreement, is a legally binding contract between two parties detailing the agreed-upon terms and contingencies for the sale of a home. It includes the sales price, earnest money deposit amount, date of closing, and a legal description of the property–among other things.
Once you’ve become familiar with the key terms and contingencies of a Purchase and Sale Agreement, it’s important to decide what aspects of an offer will be the most important to you (and any partner/spouse). Are you simply looking to maximize your proceeds, or do you want to prioritize a lower-risk buyer, or someone who can close on your (longer or shorter) timeline? Whatever it is, understanding beforehand what you need and want from the sale and mentally prioritizing what’s most important will go a long way when it comes down to which offers to accept and reject.
Now, let’s take a look at some factors we think you should consider when evaluating offers on your home.
3 Factors to Consider When Evaluating an Offer on Your Home
1. Certainty: how qualified is the buyer?
Is It a Cash Offer?
An all-cash offer often typically spells out a quicker and safer road to closing, which means cash offers are a very attractive option for sellers. Although a cash offer can sometimes come at the cost of your overall profits, the benefit is that you don’t have to worry about a low appraisal or third-party financing contingencies.
How Financially Secure is the Buyer?
When considering an offer for your home, you want to make sure the deal runs as smoothly as possible and that requires a financially stable buyer. A few good indicators in an offer of a buyer’s financial ability are: the size of their earnest money deposit, how large of a down payment they’re making, and if they’re already pre-approved (not just pre-qualified) for a loan.
- Down Payment: A down payment is the amount of money a buyer puts towards the purchase of a home that is not loaned to them by a lender. A higher down payment percentage is indicative of a financially secure and serious buyer. In general, the larger the down payment, the better. Typically, a down payment at or above 20% is a strong signal that the buyer is both financially stable and prepared to buy.
- Earnest Money Deposit: An earnest money deposit is an amount of money put forward by the buyer at the beginning of a home purchase contract as a show of good faith to you, the seller, that they’re serious about purchasing your home. This deposit is offered to you with the understanding that you get to keep the money should the buyers back out of the purchase for any reason not specified in the contract. The larger the earnest money deposit, the more confidence you can have that the buyer is serious about purchasing your home.
- Pre-Approval: Being pre-approved, unlike being pre-qualified, means a lender has officially reviewed the buyer’s credit, income, and other documentation to confirm they’re financially able to purchase your home. Although pre-approval doesn’t guarantee a buyer’s financing, it’s a strong indication that they’re a qualified buyer and ready to make a purchase.
What Are the Buyer Contingencies?
A buyer may (and most of the time will) send you an offer with contingencies that must be satisfied before the purchase can be completed. Many contingencies (or requirements) will have an effect on the speed of a transaction and may provide buyers with the opportunity to withdraw from the contract without surrendering their earnest money to you. When going over offers, take note of any contingencies in the contract and how they could end up affecting you as the seller. A simplified explanation of some of the most common contingencies we see include:
- Home Sale Contingency: the purchase of your home is contingent on the buyer selling their current home for funds.
- Inspection Contingency: the buyer can back out of the contract if a problem is found during the inspection and the parties can’t come to an agreement.
- Financing Contingency: the buyer can back out of the deal if they are unable to obtain a mortgage.
- Appraisal Contingency: When your home appraises for less than the offer amount, the buyer can pull out of the transaction or renegotiate for a lower sale price.
The key takeaway here is: with fewer contingencies included in an offer, the buyer is afforded less opportunities to walk away from the sale with their earnest money deposit, greatly increasing the likelihood the sale closes without issue.
2. Speed: How Soon Does/Can the Buyer Want to Close?
What is the Closing Date?
Pay close attention to the written date of possession that’s listed on the Purchase and Sale Agreement. If circumstances require you to stay in the home past this date, you may need to secure alternative housing, counter for a later closing date, or rent back the property from the buyers for a period of time after they gain possession.
Does this Date Align with Your Timeline?
Maybe you want to close on the sale of your home as soon as possible or you may want to close within a specific timeframe due to external circumstances. For instance, you may need to sell quickly to relocate for a new job or you may want to hold off on moving for a few weeks until the school year ends.
If the buyer wants to purchase the house sooner than your timeline, are they willing to do a rentback? A rentback, or leaseback, is when the buyer takes possession of your home but then rents the property back to you for a period of time – which may be beneficial if you need to delay your move. This is commonly seen when a seller is waiting to close on the purchase of their new home.
How Flexible is the Buyer on Timing?
If your circumstances require you to move in a specific timeframe, consider whether the buyer can be flexible with when they take possession of the property. If you need to close quickly or stay in the home for a longer period of time, you’ll need to know if the buyer is willing (and able) to work with you.
When Does the Offer Expire?
Every offer that comes in will include an expiration date (in the upper-righthand corner) set by the buyer. As the seller, you’ll need to decide on whether to accept, reject, or counter the offer and communicate this to the buyer in writing on or before this date by 9 pm. In the current market, it is very important to note the offer expiration first because it is increasingly common for offers to expire on the same day or the next.
3. Price: How Much are They Offering?
The amount of money that a buyer is offering in exchange for your home is fairly straightforward, however, there are a few extra details to consider that could end up affecting your proceeds from the sale. When evaluating the offer amount, be sure to keep in mind the following:
Are the Buyers Offering to Pay for Any Closing Costs?
Both you and the buyers are responsible for paying closing costs. In addition to covering agent commissions, the seller also pays another 1-3% for other closing costs related to the sale. Sometimes, potential buyer offers will include paying for a portion of the seller’s closing costs.
For example, the owner’s title policy–typically the third-largest closing cost for sellers–can be negotiated. Other closing costs that can be negotiated include escrow fees, recording fees, HOA transfer fees, home warranty fees, and title insurance fees.
Are the buyers requesting a home warranty?
A home warranty can cover the cost of replacing or repairing some home appliances and systems if they break after the buyer has purchased your home. Home warranties are not required, but may be purchased by a buyer when they close on a home or bought by the seller for the buyer.
Are the buyers offering a leaseback at no expense?
If your situation necessitates you to stay in your home for a while longer, you may negotiate for a rentback in which the buyer allows you to rent the property back from them for a specified amount of time after they take possession at closing. The buyer in question may require you to pay some form of predetermined rent during that time or they may be persuaded to let you stay in the home for free. In a competitive market (like we are experiencing now), a buyer who can afford to be flexible with their move-in date may offer a free limited rentback to you in order to make their offer more appealing.
Although price is a major part of the decision in which offer you decide to go with, it isn’t always the end-all-be-all, keep in mind the above factors as you go over offers to ensure you end up selecting the buyer that’s the best fit for you. Luckily, when you partner with a Team Covington agent to sell your home, we’ll be with you every step of the way. From walking you through incoming offers to handling negotiations, you’ll always have an experienced and trusted advocate to help guide you through the closing process. Have questions about what it’s like to work with Team Covington Real Estate? Learn more about selling with Team Covington Real Estate or give us a call. Our family is always here to answer any questions you might have!
*The information provided in this article is meant for informational purposes only and is not intended to constitute legal, financial, tax, or insurance advice. Team Covington encourages readers to contact their attorney or other advisors for advice regarding these matters.
Brenden Covington
Broker
Windermere Real Estate/HLC
13901 NE 175th St, Suite 100 | Woodinville, WA 98072
Cell 206.617.4879