Frequent Questions to Consider when Evaluating Offers for Your House

Picture this!   You have had your house on the market for several days now and you have started to receive offers.   Offers are fantastic, because it means you are one step closer to getting your house sold.  However, there is lot to consider when you are evaluating offers for your house. The offer price is just one component.  You have so many other items in the offer that should be looked at carefully, before pulling the trigger on accepting a buyer’s offer.   Where do you start?

We are here to help with these frequent questions to consider when evaluating offers for your house.  This set of questions is one of many for sellers considering selling their home.  Once you get done reading these questions, you can check out the other questions here.

After reading these questions, we can help you get to this step and then lead you through it.  Let’s chat about getting your home sold.

Who are the buyers? – You don’t want your home to go to anybody.  After all, you have made some memories in the home and want to make sure you are giving it up to someone who will care as much about the property as you did.   With so many real estate investors in the market today, you have to ask yourself if you are willing to sell it to a investor, who will just treat it like a business deal (nothing wrong with it, but might not be a good fit for you). Some sellers will go out of their way to get as much information about the buyers as possible so they can make an educated decision on whether to sell to them.   You have to decide how much work you want to put into knowing your buyers.

Is the offer cash or a finance deal? – Most deals will be financed as not a whole lot of people have the cash reserves to buy a house outright.  However, if you do happen to get a cash offer, you should seriously think about taking it.  Cash offers go much more smoothly because you do not have a lender, who will be working behind the scenes to make sure the buyers are credit worthy for the mortgage.  This mortgage process can slow things down considerable and it has many possible breaking points including the buyers not getting approved, or even the property itself not getting approved by the lender.  With cash transactions, you can close quickly, usually less than two weeks, while with a financed transaction, you are looking at 30 to 45 days.

With a finance deal, is it is a conventional loan, or another type of loan? – If the deal is financed, your next step when evaluating offers for your house is that you need to look at what type of mortgage the buyer is using.   Conventional loans are generally less restrictive than mortgages tied to the government (aka FHA, USDA, VA, etc).   The government puts in more steps in the process like asking appraisers to do more when evaluating the property on price.   The government backed mortgages also put a lot of emphasis on certain repairs while conventional loans are not as strict.   Finally, conventional loans generally require larger down payments so you know the buyers making the offer will be more financially sound (most of the time) than ones that can only put down the lower required down payment.

How much is the down payment? – The down payment is first determined by the lender and the loan program.  Government backed loans require a smaller down payment than conventional loans so you can expect to see more cash on the table with conventional loans.  However, you also want to consider the down payment as a way to gauge financially viability and it also eases the pressure of getting the sales price matching the appraisal.   Mortgages require a loan-to-value (LTV) ratio where they will only loan a certain percentage of the value of the home.  For example, if you had a $100k home and a 90% LTV, the bank would loan you $90K and you would be required to cover the rest.   If the appraised value is lower than the sales price, the buyer will often be forced to ask the seller to reduce the price to match the LTV ratio.   If the buyer puts down a larger down payment that would cover any differences in LTV percentages,  there is a good chance the buyer will forgo the price reduction if they want the home badly enough.

How much is the earnest funds? – Earnest funds are put forward by the buyer as a good faith gesture that the buyer is serious about the offer made on the property.   If the buyers should ever default on the contract, these earnest funds will most likely go directly to the seller.   For this reason, it is always a good idea to look closely at the earnest funds because the buyer’s dedication to the purchase can be judged well by how much money the buyer is willing to lose if the contract is defaulted on by the buyer.   The usual amount is 1% so if you see earnest funds higher than this amount, you know the buyer is seriously interested in your house.

Who is the title company? – Title companies are the institutions who will give you a title policy to protect your interests in the property’s title after you have purchased it.  Title companies will also handle all the logistics of signing the paperwork and keep funds in escrow while the process unfolds.  When evaluating offers on your house, be conscious of the title company.  Is is a reputable one?  Are they well known?  If you are not sure, ask your agent and then counter back with a title company your agent knows and trusts.

Who is paying for the title policy? – The insurance policy that the title gives you for claims against your property title is called the title policy and it can be quite pricey (check her for a calculator).   Traditionally, the seller pays for the title policy, but if a multi offer situation is in place, many buyers will offer to pay for this policy themselves to make their offer more attractive.  If a buyer is offering to do this, it is another indication that they really like your house.

Who is paying for a survey (if needed)? – The plat of the land is called the survey and it is a drawing of property boundaries and also shows easements and other legal access to the property.   Surveys can run up into the hundreds of dollars.  Hopefully, you have a current survey that you can just provide to the buyer.  If you do not, who pays for a new one?  If the buyer is offering to pay for it, you know they mean business about getting your home.

Did the buyers want to do something interesting with the property?  – Buyers will often request unusual things to be put in the contract.  These special considerations have a section all their own in the forms realtors use to make deals.   You should look at this section for any unusual items the buyer is requesting with the contract.   Basically, if there is something there, you need to fully understand what they are outlining.  If you don’t know, ask an attorney as your realtor cannot give legal advice.   You should also look to see if the buyer is requesting a way out of the contract for any unusual deed restrictions like people not being allowed to run a business out of their home.  If the buyer explicit states they want to object to this restriction, you have to find ways to alleviate the objection or the buyer can terminate the contract.   For example, they buyer has a pet monkey and wants to keep it in the house.  There could be some deed restrictions not allowing exotic pets.   If you see anything at all unusual in the contract, consult with your attorney.

Did the buyer sign the seller’s disclosure? – You provided the seller’s disclosure to buyers so they could see what you have declared about the property including its different features and its various faults in need of repairs.   If a buyer has not provided this document with the offer, you should think twice about accepting it without a signed copy.  Most likely, the buyer has not read the document so any disclosures made by you will not be known and could force the buyer later to terminate the contract during the option period when the disclosure is discovered.  In other words, buyers need to read the document before you accept an offer from them.

Did the buyers accept the property “as-is”?  – In Texas, all real estate transactions are “as-is” purchases until a time when the two parties agree upon repairs being made to the property.  Buyers do have an opportunity to state specific repairs be made in the initial contract offer.  If this happens and you sign the offer, you will be required to make these repairs.  Most offers will wait until the property inspection brings to light the repairs required so if you see this in the initial offer when evaluating offers on your house, you should think twice about taking the offer.

Did the buyer request you pay for a Residential Service Contract? – Residential Service Contracts protect the buyer from any major repairs the first year the buyer lives in your house.  These contracts are great for buyers because they give them the peace of mind that they will not be out of a lot of money if something should break down during that first year.  Most buyers will request this from the seller.  Be cognizant of how much they are requesting for the residential service contract.  If it is too much, you can always counter a lesser amount back.

When is the closing date? – Closing date is when all the paperwork is signed by both parties and the possession of the house moves over to the buyer.  You want to be sure to get as quick closing date as possible.  For offers with mortgages, you generally don’t want more than 45 days.  Cash offers should only take two weeks at the maximum.  If you see a date later than these usual standard turn around times, you should counter back.

Did the buyer ask you for closing cost assistance? – Buyers will often ask for closing cost assistance since many will not have enough money saved up for both the down payment and the closing costs.   It is not unusual for the request to be made, but sellers should be aware that these costs are taken out of the proceeds at closing.  In essence, you are selling your house for less profit when providing closing cost assistance to buyers so sellers should be careful when looking over these numbers.

How long was the option period?  How much did they pay for it?  – All buyers have the opportunity to have an option period to do due diligence on property before fully committing to the purchase.   The buyers will pay for the option period.   The traditional time is seven days for a $100, but could be anything.  If the seller sees a large time period for the option period, a counter should be made back asking for a shorter evaluation time for the property, or more consideration for the longer period.