A purchase offer is a written, detailed document that includes what the buyer wants to offer for a home for sale, together with the conditions under which they are willing to buy the home.
Receiving multiple purchase offers from potential buyers can be very exciting! It's a great indication that you have prepared your home properly for listing, you’ve priced it correctly with the help of your local real estate agent, and you’re marketing it effectively with quality photos and showings.
However, the difficult part comes when it’s time to evaluate these multiple purchase offers and negotiate the terms of the sale with the best buyer. The process can be very stressful especially if you want to avoid any regret after selling a home, which may include the feeling that you could have been able to sell your home for more but was not able to. It’s crucial that you carefully assess the types of terms and conditions that are important to you as a seller to make a wise decision.
Here are the major factors you need to consider when reviewing purchase offers for your home:
Offer Price
Your top real estate agent will help you set a realistic selling price based on comparable sales price of homes in the neighborhood. The first thing you need to consider in a purchase offer is the home buyer's offer price. However, that is only the tip of the iceberg. The one with the highest offer may look great and appealing at first glance, but it may not always be the best. You have to consider other terms and conditions associated with that great price. What’s important to think about is the figure you’ll get away with from your home sale after paying all your expenses.
Target Closing Date and Timing
When evaluating purchase offers, it's crucial to consider the target closing date and make sure it works with whatever plans you have. The closing date should be able to meet your requirements, especially if you need to move right away or there are family-related issues you need to deal with. Keep in mind the various deadlines and target date specified in the purchase offer to avoid any drawbacks within your preferred time frame.
Earnest Money Deposit
You will know that it's a serious sale offer if it comes with an “earnest money” or what they also call a “good-faith” deposit. The deposit can be anywhere from 1 to 10 percent of the selling price, but a deposit with a higher percentage indicates a more solid commitment on the part of the buyer.
Seller Concessions
Seller concessions is a monetary contribution given by a home seller to a potential home buyer to use towards closing expenses and prepaid items. After reviewing the price of a purchase offer, understand whether the buyer is soliciting seller concessions. There are instances when an offer has a higher offer price but is requesting seller concessions, compared to an offer that has a lower price but with zero seller concessions. The net proceeds of the former can actually be significantly lower because of the seller concessions.
Financing Contingencies
The seller must also understand his/her potential buyers by knowing some important information before agreeing to an offer, including but not limited to:
Whether the buyer is pre-approved
Confirm that the buyer has been pre-approved for a mortgage to avoid potential issues later on in the transaction. It's a great indication that the buyer is serious and prepared if he/she already has a loan pre-approval.
Aside from that, it will also be helpful if you establish a connection with the buyer’s lender. Ask your trusted real estate agent about the lender’s reputation or check some online reviews to make sure the lender will do a good job, and that there’s a greater chance that the loan will be funded on closing day.
The type of mortgage the buyer was approved for
As you evaluate purchase offers on your home, familiarize yourself with the type of mortgage option the buyer was approved for and know the pros and cons of different financing options. If the potential buyer has been approved for an FHA loan, do your research to understand the benefits as well as the disadvantages of this type of financing. The same goes if the buyer is approved for a VA loan. You must familiarize yourself with the pros and cons of that type of loan, and clarify any misconceptions you have about it. Likewise, an experienced real estate agent can also educate you about the types of mortgage you might encounter. Don’t be afraid to ask!
The target issue date of the buyer’s formal written mortgage commitment
A formal mortgage commitment letter is a document that lets everyone in the real estate transaction know that the lender is prepared to grant the home buyer a loan. It is only issued once a bank has processed all the buyer’s documents and satisfied all mortgage requirements. When evaluating an offer, you have to keep in mind the target date the buyer will receive his/her formal written mortgage commitment. There’s a greater chance that the potential buyer will secure funding once that document is issued.
Potential Home Inspections and Repairs
Most home buyers choose to have inspections of a home, and it's their right to do so. A buyer’s offer may be conditional upon having at least one of these most common inspections, such as a home inspection, or structural, septic, radon and pest inspections. It’s usually the buyer who pays for this, so you can make sure that your home’s structure is sound and that your electrical systems still work. However, you need to be wary as it can be costly if the offer requires you to pay for any specialized inspections, plus if you’ll also handle the cost of repairs. As a seller, it’s important that you accomplish a pre-listing inspection of your home before putting it up for sale to avoid potential problems later on.
Personal Items included in the deal
Reviewing a purchase offer will let you know if the buyer wants you to include items that are permanently installed or attached to the property, such as electric fixtures, built-in dishwasher/s, or wall-to-wall carpeting, as well as other equipment and appliances. The selling price should be slightly higher if the buyer wants to keep the appliances.
Is it a contingent offer?
A seller must also know whether the potential buyer has a home to sell. An offer that is contingent on the sale of the buyer's home is perilous because it means the deal won’t close unless the buyer sells his/her property within a certain time. Accepting an offer from a contingent buyer is risky and may cause the deal to fall through if the buyer encountered problems in his/her own home sale.
Bottom Line: Work Closely With Your Top Real Estate Agent
Evaluating multiple offers on your home can be very exciting, but it can be stressful and overwhelming as well. But understanding how to properly evaluate these offers will help you come up with a smarter decision.
Working closely with an experienced real estate agent who will guide you through the process will make the home selling experience better for you and also for other parties. Sit down with your realtor and review all parts of every offer. It's best to do some objective evaluation while consulting with your agent because he/she will explain what every clause means for you. Your agent can also help you respond to an unacceptable offer and propose a counter-offer that includes a better price or fewer contingencies.
