How do I evaluate an offer I received on my home?

If you’re not familiar with a real estate deal and all the nuances that come along with it, knowing which offer to accept or knowing if an offer is good can seem tricky. Here we will break down the structure of an offer to help you make informed decisions.

There are a handful of components to an offer that with make it stronger or weaker. When reviewing an offer you received, pay close attention to each of these but be mindful of the whole picture. 

Preapproval and Proof of Funds 

If a buyer is getting a loan, it’s imperative you get a copy of their pre-approval letter and make sure they can afford to purchase your home. If the amount on their preapproval letter is shy of the purchase price, not to worry; they may still qualify but you will want to ask them to have their lender update the letter with the higher price. You also should obtain a copy of a bank statement showing proof that they have adequate funds to close; whether they are paying all cash or just putting a down payment.

To take it a step further, if you feel the need, it’s not a bad idea to call their loan company to get a feel for how the loan officer feels about their qualifications. This is something real estate agents frequently do as some upfront due diligence on the buyer. Of course their lender will not give out any private information unless the buyer gives the loan company permission to do so.

Price 

This one is obviously the most heavily weighted to most sellers. If you did your homework upfront to price your home based on other recent sales in your area, it should be easy to determine whether the price they are offering is fair. If you don’t feel it is, you can counter the buyer to what you think is more reasonable.

Some buyers may low-ball you just to see if you will take it. If you get a low offer, don’t be offended. Some buyer’s are trying to get a really good deal, or the listing may be overpriced. Some buyer’s may not even realize they are low-balling. There is still a chance that you may be able to still make a deal with a low-ball buyer by making a counteroffer.

There is usually no reason to not counter offer given that Homepie’s negotiation tool is so easy to use. You can do it in just a few clicks of a mouse.

It’s also a good idea to keep an open line of communication using our messaging feature. You may be able to find out the buyer’s motivation and possibly get information on why they chose the price they chose. You can simply ask them to explain how they came up with the price. Once you have that information, it may help you in your response.

Down Payment 

This is usually a good indicator of how well financially-qualified the buyer is. The more the buyer is putting down, the less likely lending issues will arise. Usually lenders relax their guidelines the more a buyer is putting down.

That being said, there are many people who may be very well qualified but just don’t want to tie up the cash in a home.

Also, buyers getting an FHA or VA loan will usually be putting anywhere from 0% down to 3.5% down. These loans are slightly different than traditional loans and allow for low down payments. Buyer’s getting one of these loans should be taken just as seriously as someone putting down a large down payment with a traditional loan. There is a very high chance that you will see an offer from someone using VA or FHA.

Good Faith Deposit 

This is an amount of money that the buyer agrees to deposit into the escrow account. It shows that they have some skin in the game. In certain cases, if the buyer defaults, you could be entitled to some or all of the deposit. Keep in mind that the buyer would actually have to be in default of your contract, not just cancel. The buyer may have several contingencies that would allow them to cancel in certain situations without being in default of their contractual obligations.

Days to Close 

This time period is known as the escrow period. It’s typically 30-45 days depending on everyone’s needs. Usually you will need at least 30 days to get everything done if the buyer is getting a loan. 

Loan Contingency 

This gives the buyer the opportunity to go through the loan process, which is arduous these days, and obtain a full approval before removing the contingency. This involves the lender doing a thorough analysis of the buyer’s finances and then issuing an approval or denial. The loan officer should have done their homework up front to pre-qualify the buyer, but the approval process is more intense and more heavily scrutinized than what your average loan officer does upfront. If the buyer doesn’t obtain the approval by the end of their loan contingency period, they can cancel based on this contingency and usually receive their full deposit back.

Appraisal Contingency 

If this contingency is included, the lender or the buyer will be ordering an appraisal of the property. The appraisal is needed to make sure they are lending money on a property within their guidelines and it also assures the buyer that they are not overpaying for the home. If the property doesn’t appraise for the purchase price, the buyer can back out or try to renegotiate with you.

Inspection Contingency 

This gives the buyer a certain amount of time to perform any non-invasive inspection that they want. Many buyers will choose to only do a general home inspection, but it’s also common for buyers to look at things more closely, so don’t be surprised if they have more than one inspection. The seller is obligated to allow these inspections during the inspection period. If the buyer inspects and decides they aren’t okay with the condition of the property, they can back out using this contingency.

Home Warranty 

It’s common for the buyer to ask for a home warranty to be paid for by the seller. This is something that gives buyers peace of mind over some of the homes systems and appliances. Usually a home warranty company will repair or replace an item if there is an issue during the warranty period (typically one year).  If you choose not to buy the buyer a home warranty, they are still welcome to purchase one on their own.

Seller Credit 

It’s common for a buyers to ask for a seller credit, especially if they are first time buyers. Often, buyer’s will want to keep as much cash in their pocket to help with moving expenses, renovations, etc. Asking for a seller credit is a creative way to finance closing costs for a buyer. You are basically increasing the purchase price to cover it.

If you are considering giving a seller credit, you will want to be confident that your home will appraise at the purchase price, which will include the seller credit.

Sale Contingency 

This is a contingency allowing the buyer to sell the home they currently own before buying yours. Oftentimes a buyer will only qualify if they sell their current home so this is a way to help facilitate a sale. These sales are more complex and come with some risk. However, it’s not an uncommon situation. It’s important to stay on top of all parties to make sure things are going smoothly with both sales. Constant communication between all parties in these situations is paramount.

Included Items (Personal Property) 

All permanently attached items are included in the sale unless specifically excluded. It’s suggested that you remove anything you don’t want as part of the sale prior to listing your home and taking photos; doing so can avoid any miscommunication. Some items that may need specific clarification are things like the stove, refrigerator, or the washer/dryer as these items are not always attached permanently attached. If there is something a buyer is unsure about, they will usually put it in this section just to make sure there are no disputes down the road.

Seller to Remain in Possession

This is a seller contingency that can be added to the sales agreement via a counter offer. If your situation requires you to stay in your home after closing for a period of up to 29 days, you can ask the buyer if they would agree to that. Usually there will need to be some compensation paid to the buyer to allow this. Oftentimes this compensation would cover the buyers new expenses such as their mortgage, interest, tax, and insurance.

If you need to stay for longer than 29 days, it gets a little more complicated and all parties would want to agree to some sort of lease.

Keep in mind that the buyer’s lender may only allow this for the short term; they have different lending products and different guidelines for homes that are considered to be non-owner-occupied, so you would want the buyer to check with the lender before moving forward with something like this.

Seller’s Replacement Home 

This is another seller contingency that can be added to the sales agreement via a counter offer. If you need to find or close on a new home (replacement property) before you can close on this one, you will want to ask for this.  

As mentioned at the beginning of this article, be sure to take into account all factors when analyzing the offer you received. If you have multiple offers, compare them as a whole. Having a great price is oftentimes the only item seller’s see. However, buying a home is complicated, so make sure to weigh all the pros and cons before your make a decision.