How to Evaluate an Offer on Your House
Did you receive multiple offers on your home? Now, what to do? If you are confused about what to do next or don’t know how to evaluate an offer, we will guide you.
Factors You Must Consider to Evaluate an Offer
Evaluating an offer is one of the most stressful steps in the home selling process because you will be tempted with various offers. The following are factors you must look at before finalizing your offer:
Know Your Buyer First
Know how financially secure your buyer is
When a buyer offers you a purchase offer for your home, make sure your buyer is financially stable. That means you have to make sure everything goes as smoothly as possible. There are a few indicators that tell us about the financial stability of a buyer. Such as:
Down payment: How much the buyer is going to put down literally tells us how financially secure they are. If your buyer wants to give you a high percentage of down payment, it indicates that your buyer is serious about buying your house and is financially secured. In short, the higher the down payment percentage, the better the offer. A down payment that is between 20% to 50% is a great indicator of healthy financial stability.
Pre-approval: Is the buyer fully pre-approved? You should check to see if the buyer who has submitted an offer is a fully pre-approved buyer. A pre-approved buyer means a mortgage lender has inspected the buyer's income, credit, and other financial documents to assure that the buyer is financially sound and has the ability to buy a house. Pre-approval doesn’t guarantee you the buyer's financing, but it indicates that your buyer is a qualified buyer and they are ready to buy your house.
Earnest Money Deposit: Earnest money deposit is an initial and good faith deposit offered by a buyer. A buyer makes an earnest money deposit when he signs a purchase agreement for buying your house. This type of agreement is typically 1% to 5% of the selling price. If your buyer provides you with a higher earnest money deposit, your buyer is serious about purchasing your house.
Know buyer contingencies or requirements
If your buyer submits you a purchasing offer with requirements, both parties must be satisfied with the requirements before the purchase is completed. When you are reviewing an offer, read carefully as well as note the requirements of the contract. Here are some of the most common contingencies that may appear in the contract paper:
Inspection contingency: This common contingency states that the buyer can abandon the deal if there are concerns or issues identified during the inspection period.
Appraisal Contingency: This contingency takes effect when your house appraises for less than the selling offer amount, and the buyer will have the ability to cancel the transaction.
Financing Contingency: Financing contingency allows the home buyer to cancel the deal if they aren’t able to arrange a mortgage.
Selling Contingency: Selling contingency allows a time period for the buyer to sell their current property.
Know the buyer's option fee
A buyer's option fee means a buyer pays a non-refundable fee to the seller. As this is a non-refundable fee, you will have the full right to keep the money if the buyer terminates the purchase contract. When the market is highly competitive, the option fee amount is a big signal that the buyer is serious about purchasing your house. If the buyer offers you a large option fee, it is an indication that your buyer is interested in your property.
Know About the Offer
Is the buyer offering a cash offer?
You should know whether your buyer is offering you a cash offer or not. An all-cash offer means the buyer does not involve any mortgage in the purchase. Rather, the buyer is going to purchase your home either with a wire transfer or a check for the full amount. Generally, cash offers are attractive to most sellers because the deal is going to be completed very quickly and it is less risky. All-cash offers may come with a lower purchase price than the list price, but you don't have to worry about the involvement of third-party financing and the possibility of a low appraisal.
Is your buyer going to pay youR closing costs?
Both the seller and buyer are responsible for making payment of closing costs. In general, the seller pays the commission to the listing real estate agent and buyer’s agent, but the seller has to pay another 1% to 3% extra for other closing costs. However, there are times a seller does not pay for a buyer agent's commission. In some cases, some potential buyers will offer to pay a portion of the seller's closing costs. If your buyer is offering closing costs payment, that means your buyer is interested in your house.
Know whether your buyer is paying for new survey & survey coverage or not
In order to offer to loan money to the home buyer, lenders will need a survey, and it has to be completed before giving the loan. Insurance companies also require a survey and will request it from you. If you already have an existing survey, the buyer will opt for lenders and insurance companies. Insurance companies will likely opt for additional survey coverage in their policy for the existing survey. If you don’t have any survey, a new survey will take place. Sellers or buyers can pay the expense of the new survey and survey coverage. You should pay attention to whether your buyer is paying survey-related expenses or not.
Is your buyer requesting a home warranty?
You must look for a home warranty clause in the contract paper. If your buyer is asking for a home warranty, you will want to see who is paying for it.
Is your buyer offering a leaseback without the expense?
Look for whether your buyer is offering you a leaseback offer without any cost or not. If any critical situation arises, you may need to stay at your house a bit more and you can opt for leaseback if they allow you. Sometimes some prospective buyers may allow you to stay in your home against a rent amount. Sometimes they may offer it for free.
Know the Speed of the Offer
Know the closing date
You should know about the proposed possession date because you have to arrange an alternative home to live in within the proposed date.
Make sure the closing date aligned with your timeline
You may want to complete the purchase offer within your timeframe due to some unavoidable circumstances, like moving quickly to a new area to relocate for a job or holding off on moving to a new house until your kid's school year ends. So make sure that the closing date is aligned with your timeline.
Know whether your buyer is flexible on your timing or not
If some circumstances demand you to move to your new house within a specific timeline, then find out whether your buyer is flexible on your timing or not. If your buyer is flexible on timing, you can consider it a good offer.
Know the expirATION date of the offer
Every real estate offer comes with an expiration date. So, you must know the offer's expiration date so that you can conclude whether to reject, accept, or negotiate the purchase offer before or on the expiration date.
You must keep these factors in mind while choosing an offer because price plays a significant role in deciding the best offer.