15 questions as sellers you need to understand.
This is my organized way that makes sense for my sellers.
Believe it, a seller’s markets is still holding strong across most sectors of the country. In many cities, buyer demand is up while inventory remains low — leaving home buyers battling it out in multiple offer situations. You the seller trying to navigate it all can be daunting.
Having multiple offers can be a great thing, but how do you ensure you choose the best offer, and you do not pass up on an even better one? With multiple-offer situations becoming the norm in hot markets, knowing how to navigate these scenarios is a must, and it’s my job to provide the best possible counsel in this matter.
You are the seller, and you might be tempted to accept the highest offer, but price is only one obstacle. Aside from price, there are many other variables that you should consider as the seller, and it is my job to help you make a decision, not just part of it, based on the whole picture. There are two things we need to recall before we jump into how we assess an offer:
I want to get the absolute best price for my sellers, and we first need to understand your sales goals, to help you do that, are you looking for the most money to make from the sale? Do you need the versatility, or do you just need to sell quickly, to pass on your timeline? Are you able to effectively buy a new home in another location? You find your new home and at this time your current home has NO buyers, how are we getting around this challenge? Knowing these goals for selling ensures we are effective in helping you make the best decision.
We need to prepare you for what to expect until we understand what is most important to you as my seller. You need to understand which purchasing agreement is appropriate based on your objectives and which ones will impede your goals. Terms we need to pay attention to before we start receiving offers, and what these terms mean. Taking the time to understand the process helps to set priorities upfront while helping the you to quickly understand and analyze offers as they come in.
Making sure the terms match with your expectations is the secret to assessing offers. We have found an efficient way to pragmatically evaluate the various aspects of the offer if we
receive an offer on a listing by grouping offer terms into three categories: “SPEED” “CERTAINTY” and “PRICE!”
Speed: How fast do you want to move?
Although speed mostly revolves around the closing date, there are a few other factors to consider, but I will start with the most obvious:
What is the closing date, and does the timetable fit for it? When does the buyer want to close on the home? This one is self explanatory. But more importantly, how closely does your timeline match this date with it? A more urgent date is probably better if you are planning to move out as soon as possible. But if you’re waiting for a new home to close, it’s important to look for a little more versatility, more than likely.
How flexible is your timeline?
If your circumstances require you to move on a specific timeline, is the buyer willing to accommodate that? More flexible buyers might present an offer with a leaseback option, “NOT RECOMMENDED” which could be a great alternative for you as a seller if you need to buy more time before moving out. I also have Mortgage Brokers that maybe able to assist you with a bridge loan. Not too awfully expensive and well worth exploring.
When does the offer expire?
Many offers include an expiration date set by the buyer. This date can be a good indicator of how fast the buyer is looking to move to close the deal. However, this can sometimes put you as a seller in a tricky situation, especially when there are multiple offers on the table, and you need to decide within a short time frame.
Certainty: How qualified is the buyer?
Once we have considered how well the offer aligns with your timeline, we move on to evaluating the certainty of the offer:
Is it an all-cash offer?
Most times, all-cash offers mean quicker and less risky sales, which is what makes them so appealing. The primary benefit to an all-cash offer is not having to worry about the possibility of an appraisal coming in too low or third-party financing falling through. But even though all-cash offers bring a heightened level of certainty, they often come with a lower price tag, so depending on your goals, they will have to weigh this cost.
How financially secure is the buyer?
Having a financially stable buyer will help ensure a smooth closing. A few factors can help you determine how financially secure a buyer is: how much they are putting down, their earnest money deposit, and if they are pre-approved or approved for a loan.
Typically, a higher down payment is indicative of a serious and more financially secure buyer. The higher the down payment, the better. Down payments between 20-50 percent are a strong indicator of financial stability.
- Earnest money deposit: Earnest money is a signal of good faith from the buyers that they want to purchase the home. The buyers will not get this money back if they back out of the deal unless specified in the contract. Typically, buyers will default to 1 percent of the purchase price. An earnest money deposit higher than 1 percent means they are profoundly serious about buying the home.
- Preapproval: These days, being preapproved for a loan is pretty much a necessity in competitive markets. Even though preapproval “does not guarantee buyers financing,” it’s a good indicator that they’re ready and able to make a purchase.
Are there contingencies?
When a buyer submits an offer with contingencies, they are stipulating additional requirements that must be met before the sale can be finalized. Any contingency included in the contract should be noted and taken into consideration. When presenting offers it is critical that you understand how contingencies might impact the sale.
Financing, appraisal, and inspection contingencies are standard inclusions. Although home-sale contingencies are also common, they do add another layer of complexity to the deal. In any case, the fewer contingencies, the fewer chances the buyers can back out of the sale. Throughout the pandemic, we have seen buyers wave contingencies to craft a stronger offer, and I have seen buyers become diagnosed with Covid and must terminate the Purchase Agreement!
How much is the option fee?
In some states the option fee is a nonrefundable fee paid to the seller at the start of the option period, Florida has specific timeframe in which the buyers can terminate the contract for ANY reason without risking their earnest money deposit, depending on the type of purchase agreement we accept. This can be specified in the offer instructions. If the buyers terminate, you may get to keep the option fee. In competitive markets, the amount of the option fee is one of the best indicators of certainty. When buyers offer to pay a larger option fee, it suggests they are not afraid to put some skin in the game.
Price: How much are they offering?
Although price is self-explanatory, there are a few additional factors we always take into account when evaluating an offer. It’s been my experience and we have seen some tricky and hidden clauses that may they’ll end up affecting your net proceeds
Is the buyer offering to pay closing costs?
Generally, both the buyers and the sellers are responsible for paying a portion of the closing costs. But in a competitive market, buyers might offer to pay more than their typical share. Sellers can often negotiate closing costs like the owner’s title policy, in many counties in South Florida it is customary for the buyers to pay the title policy — the third-largest closing cost expense. This is negotiable and can be stated in the purchase agreement.
You can also negotiate facets such as escrow fees, home warranty fees, HOA transfer fees, recording fees and title insurance fees — all a part of your closing costs. It is important to take these expenses into account when calculating your net proceeds from the sale.
If needed, will the buyer pay for a new survey?
It is typical for lenders — and title companies — to require a survey before finalizing the buyers’ loan. If the seller has an existing survey, the buyer will often opt to use that, however the buyer’s lender may ask to have it re-certified. In cases where there is no survey, say if it were misplaced or insufficient to meet a lender’s requirements, one party would have to pay to draw a new survey. In their offer, the buyer will indicate which party they expect to pay. Typically, this burden is on the buyer.
Will the buyer pay for the survey endorsement or coverage?
The survey endorsement, also known as survey coverage, protects the buyer against any survey errors. If the buyers opted to use an existing survey provided by you the seller, they would usually add this coverage to their title insurance policy. Because this expense is negotiable, the buyers might stipulate that they or you the seller pay for the coverage, which will ultimately impact your net proceeds.
Is the buyer requesting you the seller pay for the home warranty?
Although home warranties are not required, most buyers choose to purchase one for peace of mind. Sometimes the listing agent will offer to pay this for listing your home. For example, it is standard for the you the seller to pay for the buyers’ home warranty, but the buyers might also choose to pay for it themselves to make their offer more appealing.
Is the buyer offering a leaseback — at what expense?
If you are flexible with this, and in Florida “I do not ever recommend it.” Buyers who are in-the-know might add the option for a leaseback to their offer, giving you the seller the flexibility to move out on their terms. Typically, the buyers require you the seller to pay rent during this time. But in competitive markets, buyers might agree to lease at an under-market rate or for nothing at all — a gesture that could end up saving you seller a nice chunk of change. When it comes to helping you navigate multiple-offer situations, it’s important for me to provide a comprehensive analysis. But when you receive five, 10 or even more offers, thoroughly evaluating each offer and presenting this information in a clean and organized way that makes sense to you is no easy task.
I hope I’ve shed some light on the daunting tasks your Realtor has when presenting offers and that phrase, “Highest and best offer,” may not always apply!