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Before you learn how to analyze offers for your home, you need to reset your expectations. Because the offer your real estate agent thinks is best may not be the one you should take.
That’s because agents have their own hierarchy of what makes the “best” offer:
- The highest purchase price
- An all-cash transaction
- Or, if cash isn’t possible, a buyer pre-approved for a mortgage
- Near-instant closing
To be fair, such a deal often suits the seller well. But it’s also the one that sees the agent get a commission most quickly.
How to analyze offers better
You’re not interested in how quickly your agent gets to bank the check. You’re interested in the offer that best meets your needs.
In other words, you need to analyze what you want from the transaction before you begin to analyze offers. Of course, you can work through the former before you receive the latter.
Put your needs first
Suppose you’ve already bought your next house. Maybe you’ve even moved into it. You’re in the position every homeowner dreads: paying two mortgages every month. If that’s your situation, then the hierarchy that will please your real estate agent is just as attractive to you. All you want is to pay off your old loan as quickly as you can while banking as much as is possible.
But suppose you’re yet to find your next home. Your reaction to an offer requiring a quick close would be similar to Alec Baldwin’s on receiving an invitation to a sleepover in the Lincoln Bedroom.
Where will you live until you’re able to move into another home? What will happen to all your possessions? Will home prices rise so fast while you’re house-hunting that you’ll lose out? The answers to all those questions involve money, possibly a lot of it. You may well decide to decline the offer, no matter how generous it is.
Negotiate your way out
In the right market, you may be able to negotiate your way out of too early a close. A recent rerun of reality-TV show “Million Dollar Listing San Francisco” included someone who did just that.
The real estate agent presented an offer of the asking price with no contingencies from a cash buyer. The requirement was for a 14-day close.
“No way,” was the horrified response from the seller, who hadn’t even begun looking for his next home. In the end, the agent negotiated a perfect deal. The buyer still got his 14-day close but agreed to let the seller remain in the home, rent-free, for another two months.
Don’t get too excited by a seller’s power
Before you imagine yourself in that seller’s position, you need to remember four things:
- It was a reality-TV show, and therefore totally disconnected from pretty much anyone’s reality
- The market in San Francisco was incredibly hot at the time
- This buyer was clearly exceptionally rich, paying all-cash for a multi-million dollar home
- The property was unique, meaning the buyer had little choice but to comply if he wanted it
In other words, don’t expect to be able to negotiate such a great deal if you’re selling a more average home in competition with many more sellers in the real world. Still, the example shows you may be able to negotiate your way around offers that don’t suit you.
When you analyze offers
Once you have recognized your own requirements for the sale, it becomes easier to analyze offers. You interrogate each element in those offers to determine how well it meets your needs. And then you balance the pros against the cons to see which is best.
Of course, only lucky sellers get multiple offers. Those who get just one have to weigh how closely it meets their needs and the odds of another coming along soon.
Many prefer having a metaphorical bird in the hand rather than risking all the others remaining in the bush. But that will depend on how hot your local market for residential sales is.
In sellers’ markets (where demand for homes outstrips supply), the chances of another, better offer to arrive in hours, days or weeks are higher. Talk to your real estate agent, but bear in mind your priorities may be different.
Clearly, the purchase price is a high priority. But it shouldn’t be your only one.
If all the offers you get are the same in every other respect, you’ll usually go with the highest one. However, there are times when a lower one may be preferable; for example, when it will cost you more to comply with a buyer’s tight timetable than the extra you’ll receive.
Or one offer is all-cash or pre-approved for financing, while another has no financing and the buyer has to sell his current house to close on yours.
Make sure at this point that you and your preferred buyer share an understanding of what’s included in the price. You don’t want to fall out later over appliances, window coverings, wired-in TVs and so on.
It’s unlikely your buyer’s out to waste your time. But plenty of deals fall through because the purchasers were too optimistic about the mortgage they’d qualify for.
The hierarchy of prospective purchasers, in order of desirability, is:
- All-cash (and you want proof of funds, like a copy of their bank statement)
- Pre-approved by a lender — The lender has carried out credit and other financial checks and has agreed to a mortgage up to a certain price
- Pre-qualified by a lender — The lender has asked certain questions of the borrower but hasn’t verified the answers. Final approval will depend on those verifications
- No engagement with a lender — The person making the offer presumably expects to get approved for a mortgage but you can’t tell how realistic that expectation is
If it suits your circumstances, you may well value a lower offer from an all-cash buyer more highly than a more generous one from someone who may or may not come up with the funds.
The “earnest money” (deposit) paid by a buyer should be lodged in escrow quickly. As the name implies, it’s intended to show that the buyer is acting in earnest and it’s in everyone’s interests for that to be clear from the start. You may see any stalling or significant delay as a red flag.
Mutually beneficial closing date
Ideally, you’re looking for a closing date that suits both parties. If one side has to make concessions to give the other a particular date, those might be reflected in the sale price.
Whether that applies in your case will mainly depend on two things. First, the state of your local property market. And, secondly, how desperate you or your buyer are to get a particular date.