04/03/20

Real Estate Insights

Why the Highest Offer is Not Always the Best Offer

So you’re selling your home and are excited to find out that you have received multiple offers. Although it might be tempting to move forward with the highest offer price, it is essential to remember that price is only one piece of an offer and that the highest offer might not be the best. The last thing you want is to have an Offer fall through after your home has been under contract and start the whole process over again. An excellent real estate agent will help you evaluate your offers to make sure you are accepting the best offer for you that has not only the best price but also the best terms and the highest likelihood of closing. Here are the few items to keep in mind:

Let’s talk about financing!

It’s not a lie that a cash offer is the best that you can get, but the majority of offers are going to have a financing contingency.  If an Offer has a financing contingency, the more money that the buyer is putting down, the better! This will add some extra assurance that the buyer is qualified and able to close on the purchase.  If you are working with a buyer that is more highly leveraged (i.e., 5% down or less), there may be a higher likelihood of the buyer’s financing falling through due to a low appraisal or an unsatisfactory inspection. In a nutshell, if your offer has a financing contingency, you want to make sure that their financing terms are appropriate for the market and as strong as possible. The last thing you want is for an offer to fall through, so it may make sense to accept a slightly lower price if the financing terms are stronger or if there is no financing contingency at all, and the buyer is paying cash. You should also request a pre-approval letter or, in the event of a cash offer, a “proof of funds” statement to make sure the buyer is qualified for the program they are indicating in the offer, and the rate is consistent with the market.

To appraise or not to appraise?

If a buyer is financing a purchase, their lender will need to issue an appraisal of the property to make sure it is worth what they are paying. In a market where properties are often selling above their asking price, there may be some doubt that the property will appraise at the contract price. If an appraisal contingency exists in the offer, then the buyer can walk if the appraisal comes back low, or you may need to reduce the purchase price to match the appraisal. Having an appraisal contingency becomes more and more important if the buyer is putting less money down on their mortgage because the buyer might not have additional funds to bring to the table if the appraisal comes back low. If the buyer has a stronger downpayment, they may have the ability to remove this contingency and either bring the additional money to the table if needed or restructure their loan to get their financing.  

Inspections and tests, oh my!

Most buyers will want to include some form of a professional inspection of the property, but when it comes to tests and inspections as a seller, the fewer, the better! It is necessary to know that inspections and extra tests (i.e., radon, mold) may reveal items that the buyer would like to have fixed before closing. Sometimes inspections come back very clean, and other times (especially with an older home), an inspector may find several thousand dollars in repairs!  A lousy inspection might either kill the deal, lead to a price reduction or credit, or involve several extra repairs before closing. It may make sense to accept a lower offer that has fewer or even no inspections/tests if it means you have a higher likelihood of getting to the closing table.

Oh yeah, when is this thing gonna closing?

It may be worth accepting a slightly lower offer if the buyer’s closing date aligns with your preferences. Is your home vacant? Then it might make sense to accept a lower offer if it means the buyer can close quickly and save you on the carrying costs of holding it for a couple of months. Need to find a new home to buy? Then maybe it makes sense to accept a lower offer from a party that can offer more of an extended closing or a lease back.  

These are just a few items to consider when evaluating your multiple offers. What’s right for you might be different for someone else. Take your time to talk through your Offers with your realtor and find out which one is best for you!