The COVID-19 pandemic has disrupted a lot of different areas of commerce in drastic ways — but not so much the American real estate market.
Experts say that it’s currently a seller’s market like none other. There are far more people looking for a home than there are selling. Homeowners who are in a position to sell right now are experiencing multiple offers on their homes — sometimes almost as fast as their properties hit the market.
If you’re a seller who experiences an “embarrassment of riches” with multiple offers on your home flooding in at once, what should you do? While you can celebrate the fact that you’re looking at a quick sale, you don’t want to just pick a buyer out of the lot at random. Plus, even though the amount of each offer is certainly something to consider, price isn’t necessarily everything.
Before you pick a buyer, here are a few different things you should consider:
1. What Kind of Funding Does Each Buyer Have?
If you’re lucky, someone will make a cash offer right on your asking price (or better). Right now, approximately 16% of home purchases are cash sales, meaning that the buyer isn’t using any kind of financing for the home.
Why could that be important to you? Well, it means that you won’t have to worry about the buyer suddenly getting turned down by their bank right before you close. It also means you won’t have to wait while a home loan goes through underwriting. If you’re looking to sell fast, that may matter a lot.
Even if you don’t have a cash buyer waiting, however, some buyers may be more of a “sure thing” than others, based on their financial situations. A seller who is pre-approved for a loan from a bank or credit union, for example, has already gone through a vetting process with their lender. They know exactly how much the lender is willing to give them — and so do you.
Remember: A buyer who is “pre-qualified” isn’t at the same level as one that’s pre-approved. Pre-qualified buyers have generally passed a credit screening with a lender, but the lender has yet to delve into the nitty-gritty of their finances.
2. What Kind of Earnest Money Are They Offering?
Every buyer is expected to bring a little money to the table when they make the offer. This “earnest money” is, essentially, a good-faith deposit that shows the buyer is serious about making the deal.
How much a buyer is expected to put down can vary greatly by your location. It could be as low as 1% of the purchase price — or it could be significantly higher. A serious buyer has nothing to lose by putting down a lot because the money ultimately goes toward the home.
So why does it make a difference to you how much is in a seller’s deposit? Well, if the buyer tries to back out of the deal without a good reason, they typically have to sacrifice that money to you for the inconvenience they’ve caused. The bigger the deposit, the less likely a seller will bail on the deal.
3. What Kind of Contingencies Do They Want?
Most offers to purchase a home come with contingencies, or provisions that make it possible for a buyer to back out of the deal without any kind of penalty (including the loss of their earnest money). Common contingencies include things like:
- A home inspection, so the buyer is assured the home is in good shape and has the opportunity to make requests for repairs, if necessary
- An appraisal, so that the mortgage lender is assured that the home is worth what they’re about to shell out on behalf of the buyer
- Financing, which basically functions like an escape clause if the buyer’s loan doesn’t go through
Even though contingencies are a normal part of a home sale, there’s a cardinal rule that you need to remember: The more contingencies an offer contains, the more potential there is for problems.
If you’re really lucky, you’ll have a buyer who is unburdened by any concerns and makes no contingencies on the deal. In reality, you’ll probably have at least a few contingencies in each offer. Most buyers want to know that a house’s title is clear to transfer and that the property is in good shape.
It’s good to remember that contingencies are always negotiable, but you may get a feel for a buyer’s personality and likelihood to make demands simply by reviewing their initial offer.
4. What Closing Date Do They Want?
The closing date is when you sign all the papers and the sale is official. If a buyer is coming in with cash and is pre-approved through a credit union or bank that’s moving through their loans pretty fast, you can be out the door fairly fast.
That might suit you just fine, especially if you’re already priming for your move. If you need more time to find your next place, however, a rapid closing date could be vastly inconvenient.
If you really like a buyer’s offer but you aren’t keen on the fast closing date, it’s okay to negotiate for more time to move.
When you’re sorting through your offers and trying to decide which one to take and what you should ask, it’s okay to rely on your real estate agent for guidance. That’s exactly why they’re there!