Factors to consider when evaluating an offer to buy your house.

Lucky is the house seller who gets a quick offer, or better yet, multiple competing offers at or above asking price. However, not every seller is this lucky and offers may be slow, low or laden with contingencies. For most of us fielding home purchase offers is a rare event, so it can be difficult to know which offer to accept. Let’s look at some key factors for evaluating which home offer is best.

Is the buyer qualified?

One of the biggest concerns for home sellers is finding a buyer that will see the deal through to closing. To determine if buyers are financially qualified sellers consider these three things:

• Down payment—down payments of 20% or more indicate financial stability
• Earnest money—a higher good faith deposit reflects a serious buyer
• Mortgage pre-approval—this offers more assurance pre-qualification

Keep in mind that a strong offer can come in with a down payment that’s less than 20%. At Consumers, we regularly finance homes with 0% or 3% down. These mortgages often help first-time buyers get a home. Look for pre-approval when there’s lower down payment for assurance that the deal will likely go through.

A buyer who’s able to pay 100% cash poses less risk than a buyer who requires financing. Plus, a cash buyer doesn’t have to be concerned with the possibility of a low appraisal derailing the deal.

Are there contingencies?

A buyer may attach no contingencies to a purchase offer or one or more. A contingency is a condition that must be met in order for the sale to be completed. Common ones are:

• Inspection
• Appraisal
• Buyer’s financing
• Sale of the buyer’s home

If the contingencies aren’t met, the buyer or seller may back out of the deal. For example, if the inspector’s report reveals a problem that the buyer finds troublesome, the buyer can cancel the contract. If a buyer has a financing contingency and isn’t approved for a mortgage within an agreed period, the seller can cancel.

For a seller, an offer that waives contingencies promises less hassle and poses less risk that the deal will fall apart.

Does the timing work?

Home possession often changes hands the day a sale is closed but it doesn’t have to. If you’d like to be in the home longer, the buyer may agree to delay taking possession and allow you to stay after the closing in exchange for a rent payment. A leaseback of 15 to 90 days is not uncommon.

On the flip side, buyers may request flexibility too. For example, if they have a  contingency to sell their current home first. In this case, evaluate if the overall offer is worth the variability in timing. The buyer’s home could sell quickly, slowly or not at all.

When there’s a sales contingency, a seller could make a counteroffer with a clause that allows them to accept the buyer’s offer but continue to field additional offers. If a better offer is made, a right of first refusal clause gives the first buyer a set period, such as 3 days, to lift the sales contingency or lose the house. In any event, with a sales contingency the timing isn’t cut-and-dry, and you have to decide if you want deal with the variability.

Is the price right?

If one or more offers comes in quickly, a seller may question if the home was priced too low; they may want to hold out for a better offer. If a home was priced in accordance with current market conditions, a fast offer may simply be an indication of fair pricing, not that the home was underpriced.

If a buyer offers less than asking price, the seller can make a counter offer. However, there’s no guarantee the buyer will accept the counter. Also, if a seller drags their feet in responding to an offer hoping more offers will come in, a buyer may lose interest and move on to another property.

If there’s limited interest or the home is on the market a long time, a lower price may be the right price.

Are there other interested buyers?

If there are multiple interested potential buyers, a seller or their agent may set a deadline for best and final offers. This can motivate buyers to act and sometimes they will make an offer with an escalation clause. An escalation clause offers to pay a set amount, such as $5,000 over a competing offer but not exceeding a certain limit.

After you sell your house

If the home you choose after selling your house requires a mortgage, explore your borrowing options with Consumers. We offer competitive home loans for existing homes and new builds as well as condominiums and townhomes.

 

All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications, and collateral conditions.