You’ve put the house up for sale and the offers start coming in. How do you go about picking the best one to make sure you don’t let a good deal slip right through your fingers?
If price were the only factor, most sellers would have it made: According to HomeLight’s past 30-day list-to-sale price ratio data, recent homebuyers as of Jan. 2019 on average paid 95% of the asking price on the home they ended up purchasing.
But deciding on the right offer is more complex than saying yes to the highest bidder. You have to hedge against various risks, like a buyer backed by shaky financing, or unfavorable fine print in the contract. In the event that you generate multiple offers (a seller’s dream!) there’s a whole strategy that goes into reviewing the bids and using that upper hand to lock in your desired price and terms.
So, without further ado, let’s go through the following 8 points you should consider when fielding offers on your home—and how to find (and secure) “the one.”
1. Talk to your agent about your priorities in selling the home before any offers come in
Before you list your house, it’s a good idea to make a list of your priorities upfront with your real estate agent, which will help you determine the right offer depending on the factors that are most important to you and your individual situation.
For example, if you need to sell because of a divorce or job relocation, speed will be a top priority. As a result, an early offer could be your best offer so that you can negotiate a closing date that aligns with your timeline.
Another factor that impacts the weight you place on one offer over another is financial hardship. For instance, if you receive an offer from a buyer who isn’t requesting repairs, you might prioritize that buyer over another because you don’t have the cash flow to pay for those upfront. In that case, you may have to price the house lower to attract buyers who are willing to forgo repairs before closing.
Wayne Newcomb, a top 1% agent in Albany, New York with almost 20 years of experience, says that even though you may be hesitant at first to share some of these personal details with your agent, you needn’t be.
“I make it very clear, when I go into someone’s home, that I owe them confidentiality so they know they can share any personal information with me,” says Newcomb. “I’m obligated not to disclose it to buyers—unless it affects the desirability or price of the home. If someone’s selling because they can’t afford the home anymore, I want them to know that that’s kept confidential.”
Newcomb admits that he usually doesn’t ask sellers, at least right away, why they’ve decided to sell, though 95% of the time they tend to disclose the reason on their own during the initial consultation.
“If someone doesn’t want you to know their financial situation, that’s a tough one because sometimes you have to know that stuff. One question I do always ask is if they’re behind on payments because that’s a whole different ball game.” (Newcomb is alluding to a short-sale which comes into play when a homeowner owes more on the house that than its worth.)
Whether you decide to withhold certain details or be an open book, trust that the agent — especially if you choose an experienced and reputable one—has your best interests in mind.
2. Review the contingencies in each offer and their chances of being deal-killers
When you’re deciding on the best offer for your house, take a close look at the contingencies that the buyers penciled in, meaning all the steps that have to occur before a seller can get paid. You can think of them as a buyer’s conditions before they’ll agree to a deal—so don’t overlook them, as they could potentially “kill” an otherwise great offer, price-wise.
The most common contingencies include the home inspection, buyer financing, and property appraisal—which all protect a buyer in the event that major defects with the home come to light or the house doesn’t appraise during closing.
Some contingencies, however, are riskier for sellers, so look out for buyers who bring an offer forward that is contingent upon selling their existing home. You have no way of guaranteeing when and if the buyer’s home will sell, which puts you in a sticky predicament if you need to move quickly.
At the end of the day, contingencies aren’t black-and-white. In fact, they could have strings attached that may not work for you. For example, buyers could drag out a home inspection period, which could be riskier to you because the buyer has more time to inspect the property and discover issues that could implicate the value of your home—and the chances you’ll sell it in a timely manner.
If you receive an offer that has too many contingencies, look at it as a way to help you narrow down your pile. Because the fewer hurdles you have to tackle when it comes to an offer, the better for you, the seller—even if the listed dollar amount is a good one.
3. Don’t rule out the first offer that comes along simply to ‘test’ the market
Determining whether the first offer will be your best offer can be tricky, especially in a hot and competitive market. Should you give it some time to see what the market holds, or pounce on a good opportunity?
Thankfully, there are resources—including experienced agents—that can help you gauge the chances that your first offer will be your best.
U.S. News World Report, one such resource, describes 5 times when you should highly consider that first offer:
- When the timing is right and you’ve strategized the best time of year to list your house (i.e. not listing from Thanksgiving to New Year’s day, but listing at the beginning of January)
- When it’s a cash offer because it involves one less contingency, making for a smoother transaction
- When you’ve a limited buyer pool due to a quirky element to your house or its particularly high value, meaning the buyers you do get will be few and far between
- When you’re pressed for time due to personal circumstances, so selling your house quickly becomes the first priority
- When you’ve already found your next home and it’ll be difficult or impossible to pay two mortgages at once
It may be the case that you receive an offer (or multiple offers) on your house within days or even hours of listing it. In fact, if you price your house right from the start, you’re based in a prime location with sought-after perks like a good school district and low crime, your house is in a great showing condition, and the market is favoring sellers, there’s a strong chance that offers will roll in right away.
If that happens (and lucky you!), don’t get cocky and opt to wait around for something better, simply for the sake of testing the market to see what you can get. You should weigh every offer seriously, and the ones that come in early may have very motivated buyers behind them who are ready to go.
Seems like common sense, right? But it’s not unusual for sellers to brush off that first offer or wait too long to see if they can get a better price, thinking their house is worth more or being unwilling to launch into negotiations off the bat.
“I find that [sellers letting a good offer get by] happens mostly when they get an offer at the beginning,” says Newcomb.
“And because the market hasn’t played out yet, sometimes sellers will think they can get more for their property than they can, and sometimes the first offer is the best offer—and they have higher expectations because of it.”
That’s not to say you have to accept the first offer that comes along, especially if it’s a lowball offer and the buyer won’t negotiate. But review it carefully, and make sure you aren’t passing up a good thing.
Also keep in mind that “the longer a house sits on the market, it actually gives the advantage to the buyer because they feel they can negotiate with the seller more,” explains Newcomb.
“The first offer is not always the best offer,” Newcomb adds. “But a good listing will usually draw a strong offer right out of the gate if it’s in a good location.”
4. Keep emotions at bay and treat each offer like a business deal
When it comes to any business transaction, like accepting, rejecting, or negotiating an offer for your home, it’s critical that you do your best as a seller to keep your emotions out of the process; otherwise, the consequences could be costly to you.
Whatever your reason for selling—divorce, death, affordability, downsizing, upsizing, empty nests, or other personal reasons—bringing your feelings about the house or situation into the equation will not do your sanity (or pocketbook) any favors.
According to a 2015 article in Harvard Business Review, “Emotion and the Art of Negotiation,” anxiety is the most likely emotion to occur before the process of negotiations begins or in the early stages because “we’re prone to experience anger or excitement in the heat of the discussions. . . and we’re most likely to feel disappointment, sadness, or regret in the aftermath.”
In fact, Harvard researchers found that people who experienced anxiety:
- made weaker first offers
- responded more swiftly to each move the counterpart made
- were more likely to exit negotiations early “(even though their instructions clearly warned that exiting early would reduce the value they received from the negotiation)”
Newcomb reports that in his experience, emotions tend to surface when dealing with estates or trusts.
If a family member has passed away and the seller grew up in the home, instead of looking at the home, market, neighborhood inventory, and offers with clear eyes, “they’ll let their emotions get the best of them…and because there’s so much emotional attachment to the home, they let [a great offer] go.”
5. Know a strong offer when you see one
Besides taking that first offer seriously, how can you gauge the quality of other offers you might get?
According to Ramsey Solutions, a trusted financial resource since 1992 and created by national best selling author and radio host Dave Ramsey, here are the top 3 ingredients that can decide the quality of an offer: financial strength, concessions, and flexibility:
1. A buyer’s financial strength (i.e. mortgage pre-approval; bigger down payment; all-cash offer)
Newcomb emphasizes that financial strength is a factor you should be keen on. Whenever he’s the listing agent on a property, he makes sure there’s a letter of qualification from the financial institution and mortgage lender; if he thinks the letter is shaky, he’ll ask permission to call the financial institution directly to make sure it is a dependable offer.
“I had [a transaction] recently where they gave a bogus letter without running the buyer’s credit,” says Newcomb. “I’ve had one where they gave somebody else’s letter of qualification. So, if it’s not strong, I’m checking it out to make sure that my seller isn’t getting involved in a situation where they’re a month-and-a-half into the process, their house is off the market, and now the buyer can’t get financing.”
2. A buyer’s concessions (i.e. buyer requests, financial or otherwise)
“I love a buyer that waives inspections,” says Newcomb. “If there’s an older home with multiple offers on it and one party wants an inspection and the other does not—and the prices are both fair for what they’re getting from the offer—we’re taking the one that’s not doing the home inspection.
“That way, I know it’s guaranteed that nobody is going to come back and maybe find mold, or termites, or something like that. I don’t have to worry about that extra expense for my seller.”
3. A buyer’s flexibility (i.e. move-out, move-in date)
Securing a buyer who is willing to be flexible on a closing date can be important particularly for sellers who haven’t yet secured a new home.
“I have some sellers that are selling their home and buying new construction, but their home is not going to be ready for 7 or 8 months. That’s always a tricky one—when to actually put the house on the market. But when you’re putting it up prematurely like that, you want to try to capture the buyer that’s going to give you the time that you need to make the transition.”
On the flip-side, if you’re on a time crunch and need to sell fast, look for a buyer who is willing to shorten the inspection window and move up the closing date. But also consider the possibility that you’re probably going to get less cash as a result.
6. Recognize the value of a cash offer but verify funds first
Among the offers you receive on your house, you could find that some buyers don’t require financing and are able to pay entirely in cash. Should you accept one of these cash offers, you won’t have to worry about a buyer’s approval for a mortgage loan falling through, and that gives you a higher level of certainty that the transaction will close. However, you should verify proof of funds before proceeding with any cash offers.
“Yes, cash is king in a real estate deal if you’re on the receiving end,” describes Bankrate, an expert-driven independent financial resource guide since 1996. “You’ll probably get a little less money out of the house that way, but you can avoid costly repairs and other complications while enjoying speed, convenience and less paperwork (and worry) in the process. As long as you’re not needlessly sacrificing thousands of dollars extra beyond the standard as-is price adjustment, it’s a good deal for you.”
While Newcomb says he does love a cash buyer because it makes the transaction much easier, sellers should not casually accept it without examining the whole offer in the context of their needs, their neighborhood, and the market.
“If a cash offer is $20K less than a financing offer that’s good conventional financing with maybe 20% down, I’m recommending the seller goes with the higher price,” Newcomb explains.
If a no-fuss, certain transaction is what you need (without the hassles of stagings and showings) you could also consider fielding offers from various cash investors—of which there may be hundreds or thousands in your market alone.
Between fix-and-flippers, buy-and-hold rental investors, and the new-age iBuyers that target homes of a certain price point, the direct-buy market is more competitive than ever and you should theoretically be able to fetch more for your house if you take the opportunity to compare offers.
7. Seriously consider offers with sizable deposits
If you’ve narrowed down your stack by now and all offers remaining are fairly equal in price, concessions, flexibility, and scope—another factor you can use to determine the best offer is the earnest money deposit.
“A good-sized, good faith deposit also matters,” explains Newcomb. “If everything else is equal and one party’s got a $2K deposit and the other one’s got a $10K deposit, to me [the latter] is a lot better because it’s harder for a buyer to walk away from the deal.”
Not only can this strategy be a winning move to snag a house from other prospective buyers, a higher deposit also benefits a buyer’s financial health (i.e. a higher deposit equals smaller monthly payments and a lower mortgage interest rate).
As a result, sellers feel more comfortable prioritizing a buyer who has monetarily demonstrated their true intention to buy the house.
According to Nolo, a publisher of legal guides since 1971, “failure to obtain bank or loan financing is a common reason for deals to fall through … the seller’s eyes will light up if you can show that you’ve got the cash to sew up a good part of the deal.”
8. Leverage a bidding war to get the price and terms you want
A bidding war is a situation in which a house generates multiple competing offers, signaling that it’s sought-after because it’s a new property, the price is right, or it has some special feature associated with it.
“It’s a beautiful thing,” says Newcomb. “It puts me in a position of power for the seller because I’m able to play the offers against one another.”
A bidding war is always good for a seller. But it can be great if you have an agent who knows how to negotiate with interested buyers to get you the best deal.
Here is a conversational scenario demonstrated by Newcomb, as the seller’s agent, for how he would handle a situation in which he has an offer in hand from one buyer, and another buyer’s agent calls him the same day to express interest.
Buyer’s Agent: I’ve got an offer coming in on this property.
Newcomb: Ok, send it over. I want to let you know I have another offer in hand, so put your best foot forward because we’re not going to go back and forth here. We’re going to give you one shot at this, and the seller’s going to choose the highest offer.
Then, Newcomb is going back to the agent with the already-established offer.
Newcomb: Look, I’ve just received another quote, so there’s another offer coming in. Let’s give you until Tuesday at 5 o’clock, but put your best foot forward. We’re not going to go back and forth, we’re going to choose the highest offer.
It’s important that both parties are given a deadline because otherwise negotiations can be ongoing—which may not work for a seller who needs to move quickly.
Fielding offers for your house: Ain’t it fun?
Accepting, rejecting, and negotiating offers is a science with a business and legal bent.
Your needs, your neighborhood, and the market may not always align in your favor—and a seller’s expectations for how many offers they’ll get and the quality of those offers could take an emotional and financial hit.
That’s why hiring a reputable and experienced agent is one of the best things you can do for your sanity and pocketbook.
Top agents have been there and done that, so whatever your reason for selling and your needs for the future, you can find comfort knowing the agent has your best interests at heart—and rest assured you won’t let the best offer slip away, or settle for a deal you’re not happy with.