Note: This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home. I will post a chapter a week. If you like what you read, you can pick up a copy here for the price of a candy bar! Buy a candy bar or be a real estate guru! The next chapter we examine is about how to evaluate real estate offers. The last chapter to be shared on this blog you can find here.
By Monday, we had our first offer arrive in my inbox. I had also had several agents tell me that I should expect to get one from them as well. Things were looking very good for Steve and Sally. When I sent over the first offer via email, I included some tips for them to consider when reviewing the offer.
1.Sales Price and Upfront Funds– Of course, the first item most people want to know is how much are the buyers offering for the home. In a seller’s market (like we have today), most offers will come in close, or even over, your list price. Buyer’s markets will generally bring your lower initial offers. Lower offers should not be automatically dismissed. If the rest of the offer is strong, you could reject the initial offer and make a counter offer with a higher sales price. You also must look at how much upfront costs the buyers are offering to put forward. If it is a finance offer, is the down payment amount high, or low. You will want to look at the down payment amount closely as one consideration of the financial strength of the buyers. Earnest funds are the buyer’s good faith gesture on the validity of their offer. These funds could be lost to the buyers should they ever default on the contract. A higher earnest money amount can indicate that the buyers feel strongly about their ability to go through with the contract. Finally, how much option money is being put down. Option periods give the buyers a set amount of time to perform due diligence on the property and the ability to back out of the contract without defaulting on it. It is usually from 3 to 14 days in length. This option money stays in the pocket of the sellers no matter the outcome of the contract.
2.How much is it costing you? – Most sellers will be asked to pay some fees in offers. A title insurance policy will need to be purchased, which fall to the sellers in most cases. This can run up into the thousands of dollars. Some buyers will need assistance with their closing costs and will ask the sellers to contribute. It can also be in the thousands of dollars. What about a survey? If you do not have a current one, then the cost will be placed on the seller (in most cases). Some buyers will want the sellers to buy them a residential service contract for the property. This contract acts as a warranty for the buyers during the initial year of ownership. This can cost in the hundreds of dollars. Sellers will not have to pay for these items out of pocket if they do not wish. Instead, it can be taken from the proceeds the seller receives on the sale of the house, which is a good reason to look over the costs very carefully.
3.Closing Date and Possession – What date are they planning closing on your home? This is a consideration because a whole slew of things can go wrong with a deal that causes it to fall apart. The longer time it takes for a buyer to close on a home, the higher chance the contract will not go through to completion. For this reason alone, cash offers are always the best type of offer. Cash offers can usually close in two to three weeks because you don’t have to wait for a bank’s approval. In fact, some sellers will take a lower offer price based on a cash offer because of it has such a high chance of closing quickly. Conventional loans are better offers than FHA and VA loans, because the government backed loans carry some extra requirements that could kill a deal. When does the buyer want to take possession of the home? Most deals will require it upon closing and funding. However, you can request to lease back the property for few days after the deal closes, which take the pressure off for you in planning for the move out of the home.
I got a reply from Steve saying that they would look over the offer and get back to me. The offer itself was a strong one with the buyer matching the asking price and willing to pay for a new survey. Most of the traditional costs were still being required by the buyer including $5000 in closing cost assistance. It was a finance deal with a closing six week in the future. Steve and Sally decided to counter off with no closing cost assistance and a quicker close date. The buyers couldn’t do the deal without the closing costs assistance, so the deal did not go through. Luckily, Steve and Sally did receive three other offers Monday. Instead of calling for final and best offers, they decided to pick an offer that was a conventional loan for $3000 above their asking price with almost all their costs being absorbed by the buyer except for the title policy. We executed the contract that evening with a seven-day option period. I told Steve and Sally via a text that I would be calling the next day with some tidbits about the option period.