Most sellers would be delighted to receive multiple offers. However, figuring out which offer to accept is not always as simple as you might think.
Suppose you receive three offers. One is for $495,000: your asking price. Another is for $10,000 more. And the highest offer is for $525,000–$30,000 over the list price. If you look at price alone, you’d have no reservations about accepting the highest offer.
However, there’s more to consider about an offer than the price. The $495,000 offer might be from a preapproved buyer who has a $250,000 cash down payment and no appraisal contingency. This means that if the house appraises for less than the offer price, the buyer cannot use this to back out of the contract without risking losing his deposit.
The lender should have no problem granting the buyer a mortgage for approximately 50 percent of the sale price, even if the appraisal comes in low. The more cash down, the more likely the lender will approve the loan.
The highest-price offer might be from a buyer with a 5 percent cash down payment and an appraisal contingency. This means that if the property appraises for less than the purchase price, the buyer has an automatic out of the contract. Even if he doesn’t want out, the lender won’t be willing to grant a mortgage in the amount the buyer needs to complete the sale. With only 5 percent down, there’s a good chance that the buyer won’t have enough extra cash to make up the difference between the appraisal amount and the purchase price.
The third offer could be contingent upon the successful close of the buyer’s home that is currently under contract. If the deal on his house falls apart, the buyer can withdraw from your contract without penalty. If this happens, you’ll be back on the market searching for a new buyer.
So, in terms of a risk analysis, the lowest price offer appears to be the best offer. One option would be to counter the lowest offer with a higher price, based on the fact that you have two offers higher than his. Before making a counter, however, consider that the buyer could say no and disappear form the scene leaving you with two riskier offers to choose from.
If you have already purchased another home, you might be better off leaving the price alone on the lowest offer and simply ask for a quick close. A quick close could save you the cost of interim financing, which would effectively put more money in to your pocket.
HOME SELLER TIP: To simplify the task of comparing multiple offers, make a chart including a grid of all the variables that could effect your decision. On the far left make a column for the offers. List them by the buyer’s, or their agent’s, name. Then create a row at the top of the chart for the most important elements of the offers. Each element will head a separate column on the grid chart. Elements might include: the price, the amount of the down payment, whether or not the buyer is preapproved, the closing date and the contingencies.
When analyzing offers, the fewer the contingencies, the better. Contingencies can complicate a contract by providing more opportunities for a transaction to fall apart.
THE CLOSING: In general, you’re looking for the highest price, the quickest close and the least number of contingencies. But, a lower-priced offer with a quick close and few contingencies could be better than a higher priced offer.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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