Yes, the real estate market has started to cool down. Still, in most parts of the country, vendors are in an enviable position. With housing inventory still tight and prices still high, you’ll likely find yourself entertaining multiple offers on your home.
While we all love options, and a bidding war for your listing is certainly flattering, this situation can be mind-boggling for a seller. Is the highest offer always the best offer? Here, real estate agents offer advice on how to compare potential buyers and what to consider before choosing a winning offer.
With multiple bids, does the highest bidder win?
“The first thing people look at is price, but that can be very short-sighted,” says Kimberly Allard, a real estate broker and agent with Century 21 Professionals in Massachusetts. “Someone can offer you anything [amount] they want, but if they can’t get behind how they’re going to fund it, it’s essentially a worthless number.”
Price matters, of course, but a homebuyer’s offer is much more than a number. When you sell your home, there are contingencies, terms, and financing to consider. A qualified real estate agent can help you weigh all the factors at play, says Allard. Here are some questions he recommends asking about each bidder:
- What percentage of the purchase price is the loan?
- What type of loan is it?
- Are they waiving any inspection?
- Are the contingency dates tight?
- What is the requested closing date?
- Does the buyer have a house to sell?
- What is the amount of your security deposit?
- Is the offer legible and on state approved forms?
- Are all required disclosures attached?
Clearly, there’s a lot to think about beyond who offers the highest purchase price. Let’s take a closer look at some of the most important factors when looking at various offers.
The sale of a house usually comes with various contingencies, clauses that allow either party to back out if certain conditions are not met by a specific date. Most offers include an inspection contingency, for example, which allows the buyer to have the home inspected and potentially back out if they find any major problems.
Much depends on the applicable deadlines. “For sellers, the contingency terms a buyer has on the offer are often seen as just as important as the price of the offer,” says Beatrice de Jong, broker and consumer trends expert at Opendoor in California. “From the seller’s perspective, these contingencies can be scary as it means the buyer can back out of the contract.”
When you’re comparing multiple offers on a home, as a general rule, fewer and shorter is better. Fewer contingencies means there are fewer obstacles between you and the closing table. And shorter terms mean the buyer means business. “Buyers requesting longer-than-usual contingency terms are seen as a red flag by the seller and can send the message that this buyer is already thinking about canceling,” says de Jong.
Examine the finances of each buyer
You need to look at the potential buyer’s overall financial picture, not just the asking price. That means considering the following:
- Loan Status: “You want pre-approval, not pre-qualification,” says Allard. “Preapproval verifies credit, assets, and income. The lender has seen pay stubs and statements.” His agent could also get involved here, adds de Jong: “The seller’s agent usually calls the lender to make sure there are no expectations of delays or problems with the buyer’s financing.”
- Deposit: When it comes to down payment amounts, generally more is better. A small means that a large part of the financing for the purchase of the home depends on a loan, and that loan may present obstacles that could interfere with the sale. De Jong says to look for “a bank statement showing proof of funds for the initial deposit.”
- Current situation of the house: If the buyer needs to sell their current home before they can buy theirs, they will likely include a contingency to that effect. You could be waiting a long time for your sale to go through.
- Ability to close an evaluation gap: When people get a mortgage, their lender has the house professionally appraised to ensure that it serves as adequate collateral for the loan. But what if your house is appraised too low? Allard recommends asking, “If there is a gap between the bank’s appraisal, how does the buyer plan to deal with it? Would they be able to bridge the gap? Especially if your buyers get into a bidding war that goes beyond the home’s fair market value, make sure the buyer you choose can cover the difference.
Ultimately, a potential buyer’s financial picture extends far beyond your offer price. His agent should help you drill down to get a clear picture of each side when comparing multiple offers on your home.
Is a cash offer always better?
If an all-cash offer comes your way, you may be able to skip all the financial hassles. Because this eliminates the need to work with a mortgage lender, it can streamline the process considerably.
However, that doesn’t mean it’s always for the best. For starters, be sure to verify that the cash buyer does indeed have the necessary liquid funds to honor your offer. Request proof of funds and consider all other details of your offer as well. Do you waive appraisals? Are there any contingencies that could negatively affect it?
“At closing time, no vendor walks away with a bag of thousand-dollar bills,” says Allard. “Nobody comes out of a closure with [actual] money.” So while a cash offer may seem tempting, evaluate it as you would any other offer. In fact, it may be your best and safest option, but it may not be.
Look at the deadlines
Time is money, and it might be worth accepting a slightly lower offer to make the closing schedule work in your best interest.
“The amount of time it takes for a buyer to close can be important to a seller,” says de Jong. For example, speed is essential “if you need the funds quickly to buy your next home, or if you prefer a longer time to pack up and move out of the house.”
Ultimately, closing times can make or break an offer. Make sure you understand what the schedule for handing over your keys would look like with each offer you’re considering. It may be worth getting a little less money for a deal that better fits your schedule.
Getting multiple offers on your home puts you in an enviable position. That said, the decision you have to make is an important one. Be sure to look well beyond the offer price to identify the best deal for your particular situation. Your real estate agent should be of great help here.