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Sell Your Home:Choosing the Right Purchase Offer

Posted by Pete Sabine on October 22, 2007

Most sellers would be delighted to receive multiple offers from prospective buyers. However, figuring out which offer to accept is not always as simple as you might think. Suppose you receive three purchase 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 consider all the factors of each offer, then the best offer might not be the offer with the highest price. Let’s look at each offer a bit more closely. 

Offer 1:There’s more to consider about an offer than the price. The $495,000 offer might be from a pre-approved 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 may not use this reason to back out of the contract without the risk of losing their good faith deposit monies. The lender should have no problem granting the buyer a mortgage for approximately 50 percent of the purchase price, even if the appraisal comes in low. The larger the cash down payment, the more likely the lender will approve the loan.  

Offer 2: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 the right to back out of the contract without forfeiture of their deposit to the seller. Even if the buyer 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 the buyer won’t have enough extra cash to make up the difference between the appraisal value and the purchase price.  

Offer 3:The third offer could be contingent upon the successful close of escrow of the buyer’s current home that is now under contract. If the transaction on the buyer’s home fails to close, the buyer can withdraw from your contract without penalty and forfeiture of their deposit to the seller. If this happens, you’ll be back on the market searching for a new buyer.  

Counteroffers:In terms of a risk analysis, the lowest price offer appears to be the offer with the best terms. One negotiating option would be to counter the lowest offer with a higher price, based on the fact that you have two offers higher than offer #1. Before making a counter offer, consider that the buyer could reject your counter offer and disappear from the negotiations 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 asking for a short close of escrow date. A quick close could save you the cost of interim financing, which would effectively put more money in your pocket with less risk. When analyzing offers, the fewer the contingencies, the better. Contingencies can complicate a contract by providing more opportunities for a transaction to fall apart. In general, you’re looking for the highest price, the quickest close and the least number of contingencies. 

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