How To Pick The Best Offer On Your House
Lauren Nowacki6 minute-read
September 23, 2021
In a perfect world, you’d list your house for sale and in a matter of hours, get a dream offer – one that’s thousands of dollars over the asking price, has great terms and comes from a home buyer who has already secured financing. But in the real world – and in this current housing market – choosing a buyer for your home can be a little more complicated. It’s common for sellers to receive multiple offers and struggle to pick the right one. If you’re wondering how to choose a buyer for your house, follow these six steps for success.
How To Choose An Offer On Your House: 6 Steps For Sellers
It can be difficult for sellers to determine the best offer as there are multiple aspects of a bid to consider. To simplify the decision-making process, we’ve come up with step-by-step instructions for properly assessing your options.
1. Discuss The Perfect Purchase Price With Your REALTOR®
Knowing what you want and don’t want ahead of time will help you weed through offers on your home when they start coming in. By having a number in mind, you can stay grounded enough to look at other factors when you get a high offer and to know when a potential buyer is truly lowballing you. Discuss your ideal purchase price with your real estate agent, who can make recommendations and set realistic expectations based on your home, comparable homes in the area and the current market conditions.
Remember that, although the purchase price is a crucial part of any offer, it shouldn’t be your only determining factor. There are other parts of the offer you should consider – ones that could make the highest offer no longer the best offer.
2. Assess Any Contingencies In The Offer
A contingent offer comes with certain clauses. It allows the buyer to back out of the deal without losing their earnest money deposit if something happens involving any one of the contingencies listed in their offer. For example:
- Inspection contingencies allow the buyer to have the home inspected and back out of the deal or renegotiate if the inspection finds an issue with the home.
- Appraisal contingencies give buyers the right to walk away from the deal or renegotiate if the home appraisal is less than the specified amount.
- Financing contingencies allow the buyer to back out if they cannot secure financing to purchase the home.
- Title contingencies let the buyer cancel the sale if the title comes back with any liens.
- Home sale contingencies protect the buyer from having to go through with purchasing a home if they fail to sell their current home. They may need to settle their current mortgage before getting a new loan and may also be relying on the proceeds of the sale to help pay for the new home. A home sale contingency can be tricky because there’s no guarantee the buyer will sell their home within the specific time.
The problem with contingencies is that you may miss out on a different offer by accepting one with contingencies only to have the deal fall through.
3. Plan Out An Ideal Time Frame
Before listing your home, you’ll want to have a general timeline of when you’d like to close on your home. This can be based on when you need to move into your new home, on specific dates, like before the holidays or first day of school, or any other personal preference. With this time frame in mind, it may help you knock out some potential offers or choose ones above others. That’s because a home buyer’s time frame can affect the sale of your home, your purchase of another or your plans for other things. You may need extra time after closing to move. If you have a buyer who refuses to allow extra days or weeks before moving in, you could get stuck in a bad situation. Or, if you’re trying to sell your home and your purchase of a new home is dependent on it, a buyer who’s dragging their feet or struggling to get financing could cause your sale to fall through.
4. Review The Potential Buyer’s Financing
If the buyer you choose fails to get financing, it could break the deal. One way to help avoid this from happening is to review each potential buyer’s financing. Now, you can’t go asking for bank statements and W2’s, but there is some information you will have that could indicate potential issues:
- Loan type: You’ll want to pay attention to the type of loan a potential buyer is getting. Different loans will have different requirements. Those requirements could slow down the process or be harder to qualify for. For example, an FHA loan has lower credit score requirements but requires the home for sale to pass specific property standards of the FHA. Conventional loans typically have a lower down payment requirement, but a higher credit score requirement. And while jumbo loans can allow a buyer to borrower more money, they are harder to qualify for, may request more documents and require a higher minimum down payment.
- Cash: There are many benefits of selling a house for a cash offer. Because the buyer doesn’t need to get a mortgage, a cash offer would cut out a lot of time and fees associated with closing the loan. And because the buyer already has the money to sell and doesn’t have to qualify to get it, you can worry less about the deal falling through.
- Down payment: A larger down payment can be a good sign that a buyer is in good financial standing and is more prepared to purchase the home and handle any issues along the way. They may also have an easier time qualifying for a loan because lenders will see them as less of a risk.
- Preapproval or proof of funds: An offer that comes with a mortgage lender’s preapproval letter should have value over an offer without one. A preapproval letter will show you that the buyer is serious and has already taken steps to get financing. It shows you that the buyer can afford to purchase the home and has met many of the qualifications of getting a loan up to a certain amount. That means there’s less of a chance the deal could fall through because they have a problem qualifying for a certain amount money.
5. Figure Out Who Is Paying Closing Costs
Closing costs are fees paid to the lender for processing the mortgage loan. They’re about 3% - 6% of the cost of the home and most of the costs are typically paid by the buyer. While sellers will pay some closing costs on their end, including their agent’s commission, home buyers may request the seller pay the buyer’s closing costs, too. This is known as a seller concession. This will be something to consider when reviewing offers because it could affect the final amount of money you’ll get from a sale. An offer that’s over the asking price but requests that you pay seller concessions may not be a better offer than one that’s just at the asking price, with no concessions. It may depend on what you end up paying. If you agree to seller concessions, you can review all your costs on your closing disclosure.
6. Use The Earnest Money As A Tiebreaker
An earnest money deposit, also known as a good faith deposit, may not be as important as other offer terms, but it can be helpful as a tiebreaker. When you have two similar bids and one has a bigger earnest money deposit, you may want to choose that one.
Earnest money deposits show the seller that the buyer is serious about purchasing the home because, if they walk away from the deal, they could lose that money. Therefore, the larger the earnest money amount, the less likely it is that the buyer will break the deal.
The Bottom Line: Analyze Each Offer Before Choosing A Buyer For Your House
When selling a home, expect to receive many bids and counter offers and make sure you repeat the assessment process for each prospective buyer to make sure you can clearly see the best offer for your goals. This is just one way to help make the selling process a little easier. Other ways to ensure a smooth sale are to learn about every step of the selling process and to learn more about potential closing issues that could affect you later on.
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