Is the highest offer when selling a home always better?

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Should you always accept the highest offer when selling a home? That depends on three major factors:

• How strong is the offer overall? Are there a host of contingencies?
• Do you need a higher price to pay off your mortgage and other costs?
• Is the timing in line with your needs?

If you’re selling a home with no time constraints a top price may be your top priority. If the deal falls through, it won’t necessarily disrupt your life. But if you may need a faster close or a surer deal, and in that case, a lower offer may be the better one for you.

Listen when your agent presents offers

Your agent calls by with multiple offers. And all you hear is, “Blah, blah, blah $x ... blah, blah, blah, $y ... blah, blah, blah $z.” You lose patience and just want to cut to the chase — the highest offer.

It’s natural to focus on the bottom line. But those blah, blah, blahs may mean you’d be better off accepting a lower offer.

Related: Avoid these 7 mistakes when making an offer on a house

So ask your agent to run through those offers again, explaining in language everyone can understand, the pros and cons of each. Pay particular attention when he or she talks about contingencies, cash or mortgage and the time to closing. Because the highest offer when selling a home isn’t always the best.

Take the highest offer when selling a home ... sometimes

There’s no point accepting an offer that’s higher than another if it will cost you more than the difference to comply with its conditions. For instance, one buyer offers full price but then wants a 5 percent credit for closing costs, while another offers 97 percent of your asking price and wants no other considerations.

Or what if you get an unexpected quick sale? Perhaps you’re yet to find another home or the one you’ve set your heart on won’t be available for a couple of months. Accepting an offer with a 10-day close would mean paying rush rates to movers and then forking out for storage and hotel bills or an apartment rental.

Even leaving aside the additional stress and disruption, you may be better off with a lower offer that doesn’t impose these extra costs.

On the other hand, maybe you’ve already closed on the home you’re buying, or will do so very soon. The nightmare of paying two mortgages is either already upon you or looming. Then, a quick close could save you many thousands. It pays to do the math before making a decision.

You could probably do the calculations on the back of an envelope. But, when you’re doing your arithmetic, take into account some other factors ...

Contingencies

Few purchase offers are unconditional. They typically come with “contingencies,” which are basically let-out clauses that allow the buyer to walk away unscathed from your deal in certain circumstances.

Related: What are "contingencies" in real estate?

Buyers can write any contingencies they want into their offers. Common ones include:

1. Mortgage finance — If the buyers don’t get their mortgage approval, they are off the hook
2. Home appraisal — If the home falls short according to the valuation of an independent appraiser, the deal’s dead
3. Home inspection — If the property has significant defects, you’re done
4. Clear title — Any issues with your title (your ownership of the property and your right to sell it) and it’s all over
5. Home sale — If the buyer can’t sell her own place, she can walk away

Of course, buyers don’t have to withdraw if a contingency is triggered. They can come back to you, demanding to renegotiate the sales price. That happens a lot, especially over appraisals and home inspection issues.

All this means that an offer larded with many contingencies is often worth a whole lot less than one with few or none. Most come with some. But occasionally a developer or someone rich in pursuit of his perfect home will tempt a seller with a no-contingency deal.

Cash vs. mortgage

Clearly, your buyer won’t be able to trigger a mortgage finance contingency if she’s paying cash. And that’s a big plus.

But cash buyers come with other advantages, especially if you’re in a hurry to close. Buyers who need mortgages face a long and complicated bureaucratic process. And it’s one that at any point can bring delays or an outright inability to proceed. Someone paying cash will often expect a lower price because she faces few obstacles and poses fewer risks.

Pre-approved buyers can close on a deal as long as the property meets their lender’s guidelines. That makes them a better risk than those with “naked” offers.

Pre-approved buyers

Not all buyers who need a mortgage are equally attractive. One who’s been pre-approved for a loan is in a much stronger position than one who hasn’t. A buyer with mortgage pre-approval, also called credit approval, has applied for a home loan, authorized a credit check, and supplied proof of income and assets.

Related: Mortgage pre-qualifications are good (but pre-approvals are better)

A mortgage pre-approval letter accompanying an offer should state that the buyer can close on a property costing $X with a down payment of $Y. As long as your property appraises for at least the selling price and has no inspection or zoning issues, your sale should close.

Someone who’s only pre-qualified isn’t quite as sure a bet. This buyer has also engaged with a lender and answered questions about finances. But often, pre-qualification doesn’t involve a credit check or verification of anything. Many pre-qualification letters simply state that if what the buyer told them is true, the lender would be willing to loan.

A buyer who is neither preapproved nor prequalified is much riskier. For all you know, he or she stands zero chance of having a mortgage application approved.

Cost of keeping your existing home vacant

If you face the possibility of moving on and leaving your existing home empty, you’re probably worried about the prospect of paying two mortgages. That’s scary.

But it’s only the start of your financial pressures. The costs of maintaining a vacant home are similar to those for one that’s occupied. Except for utilities, outgoings will remain the same: property taxes, homeowners’ association fees, and perhaps your pest control agreement and home warranty. Worse, you’ll need to pay higher insurance premiums.

Insuring your empty home

If you leave your home unoccupied for 60 days or more, your homeowner’s insurance is likely to become invalid. Some insurers ask you to let them know if your place will be empty for more than 30 days.

And, if you fail to make appropriate arrangements with your insurer, any claims you have to make could fail. That applies whether the property is “unoccupied” (with your possessions still in place) or “vacant” (when its contents have been removed.

Related: What does homeowners insurance cover, and why do lenders require it?

To keep the coverage you need, you’ll have either to get an endorsement for your existing policy or take out a whole new one. For unoccupied homes, the cost of maintaining coverage isn’t typically too great. But, for a vacant home, expect to pay anything between 1.5 and three times as much as you normally do.

So should you accept only the highest offer when selling a home?

If you’re in no hurry to sell and don’t mind risking a failed purchase, taking the highest offer when selling a home may make sense.

But most sellers want only to accept offers that are likely to survive all the way to closing. They can’t afford to deal with buyers whose contingencies and mortgage applications pose high risks. But only you can decide how much you value having a bird in the hand.