Receiving multiple offers on your home is a fantastic feeling. Here's what you need to know to select the absolute best offer for your home!
It's a seller's market right now. Homes that go on the market are getting snapped up about as fast as possible. Many of them are going above the asking price, as inventory is low and the number of people looking to move is high. This situation is leading to many listings receiving multiple offers.
For sellers, this presents a unique (but excellent) problem whereby you have to pick the strongest of the offers that you received. The question is, of course, how do you know which one to choose?
Your real estate agent can help you select the best offer and leverage those offers to create a potential bidding war for your property. Here are a few tips for how a seller can go about choosing the right buyer for their home.
First, sellers should look for any all-cash offers they may have received. These are typically the best ones to choose from because they are virtually guaranteed to close. While most real estate transactions go through without any issues, those who do have problems typically fall apart due to financing woes. A shockingly large number of people either don't have a pre-approval, or they bid so high that their down payment doesn't let them secure the loan.
Either way, typically, you should look at cash offers with the highest priority. If you want to sell your home, an all-cash offer will virtually guarantee that. So, if you're selling a home that's $500k, and you have a $500k all-cash offer or a $500k loan offer, take the all-cash one!
Things get significantly murkier when you have a higher loan offer versus an all-cash one. Let's say you have a $500k all-cash offer vs. a $600k loan offer; which should you pick? There's no single answer to that question. If selling your home is of the utmost importance to you and you want to know your sale will go through, you might want to take the lower all-cash offer. However, if you're going to get the highest amount for your home, then usually you'll prefer the higher-dollar one over the cash one.
The fewer contingencies an offer has, the fewer opportunities the buyer has to walk away from a sale. Therefore, typically the offers that have the least number of contingencies are ones to review first.
A standard homebuying contract might have multiple contingencies, including attorney, finance, appraisal, and home inspection contingencies. At each one of these contingencies, the buyer could potentially have a reason to walk away from the entire transaction.
Therefore, a home buyer that waives the home inspection contingency, for example, is a stronger candidate than the one with it. Waiving that contingency means that the buyer cannot walk away from the purchase if the home inspection reveals any issues.
Buyers who put more earnest money down are typically much more serious about purchasing those who don't. Typically, the earnest money is around 1%-3% of the home's value, but some people can offer more if they desire. In a competitive market, it's not uncommon to have people offering up to 5% to attract a buyer's attention!
The reason why these offers are preferable has to do with the contingencies. If the buyer breaks the sales agreement due to one of their contingencies, they get the earnest money back. But, let's say the buyer fails the deal due to something else. You get to keep the earnest money. Therefore, a buyer that is willing to risk more for the deposit is also more likely to proceed with the transaction.
Additionally, a higher earnest money deposit also shows that the buyer has more financial resources to commit to the property. If they put 3% down, that's the minimum down payment for many loans. So you can have reasonable confidence that they will pass the finance contingency.
Therefore, offers will more substantial earnest money should be in your top contenders!
If the offers you are looking at require financing, choose those with pre-approval. Unfortunately, many buyers overestimate their ability to qualify for a mortgage. In particular, many buyers know their credit score, and they think they can be eligible on that alone, not realizing that there are other factors (like the debt-to-income ratio) that banks take into account.
Furthermore, if the property is above the Freddie Mac and Fannie Mae guidelines, there's typically much more scrutiny for the paperwork and much higher down payment requirements. Most people don't know what those limits are ($548,250 for conforming loans in 2021), and they frequently bid on properties above them, expecting to qualify on a minimal down payment.
Bottom line: look for offers that have pre-approvals. You'll have much more confidence that the loan will be a success if you select the offer!
If you have 50 offers or more (it's not entirely uncommon!), selecting the right one can be tricky. Even having a couple of very different offers can make the selection process challenging.
While each seller is different, generally, taking the offers and sorting them by money is the best first approach. Put the contracts that have the highest purchase price up top.
Then, subrank those by all-cash, pre-approval, and contingencies, next. So, a $500k offer that's all-cash ranks higher than a $500k offer with a pre-approval. Both would rank higher than a $500k offer with no pre-approval at all.
Don't forget that you can also send counter offers! If you have an all-cash buyer at $500,000 and a mortgage buyer at $525,000, you can always ask the all-cash buyer if they'd be willing to fork over the $525,000 to match the other prospective buyer. With a skilled real estate agent, you can usually use a multiple offer situation to create a bidding war that works out to the buyer's advantage.
