This has to be one of the hardest decisions facing a real estate seller. Every situation is different. What works for one seller may not work for you and vice versa. I hope to lay down a strong foundation so that you can make an informed and educated decision. By the end of this blog you will be empowered to make the right decision for you.
Factors To Consider
- Sales Price
- Market Conditions
- Necessity Of Sale
- Net Proceeds
- Timing Of Close
- Buyer Profile
- Property Condition
- Repairs
- Terms
- Conclusion
Sale's Price
This is by far the king of all factors. Of course you want someone to come in and offer you a bagillion dollars for your home. As a real estate agent, I'd like to make a commission on a bagillion dollars ( I'm about to be rich y'all! ). However, if that person offering you a bagillion dollars is unable to perform, what good is the offer. Then again what about a person who offers you a bit below asking. Do you brush off that scrub? Or do you consider it?
Now you have to be worried about above asking price offers. If this person is getting a loan, you have to worry about the appraisal. If the appraisal doesn't come in at or above value then you can't move forward. So someone offering you a bagillion dollars doesn't really matter unless they are offering you all cash. Bring in the money trucks!
I'd say that selling price is the biggest term to consider. However, it shouldn't be the litmus test whether you take the offer or not.
Market Condition
This is your second step in determining whether you should accept that offer. Ask yourself this fundamental question: Is this a buyer's market or a seller's market? If it's a seller's market you might want to wait on accepting the offer. You might want to see whether or not another offer comes in which can happen in a seller's market. Typically in a seller's market there is less inventory. This means that buyers are competing for limited amount of properties. This is good for a seller. However, don't wait too long to make your decision. Depending on the contract, offers are only good for a certain amount of days. In California, the typical time an offer is "live" is three days. If you don't act within the three day period, the offer is no longer valid.
Necessity Of Sale
Let us begin by painting a mental picture. Let's assume that you own a rental property. You're interested in selling but you don't absolutely have to sell. Now, where do you think that you would begin pricing the property? It's been my experience that this situation leads to a higher than market pricing strategy. You're thinking I'm making money from the rent and if a buyer who gives me what I want they can have it. Otherwise, I don't have to sell. Does that situation feel like someone who needs to sell? No. This person is less likely to take any offer. Actually, I'd say they usually pass up perfectly reasonable offers always looking for more money.
Now let's examine another situation. This time you're getting a big promotion. Yay! But you have to move out of state within 90 days. What type of offer do you think that you'll accept now? Would you wait to get an offer that is above asking or would you even accept an offer below asking? I'd venture to say that you're very likely to accept an offer below asking.
Now that you have a firm grasp on different situations ask yourself this: Where does my situation fit on this spectrum? Do you have to sell or can you sit back and chill?
Net Proceeds
At the end of the transaction, do you absolutely need to get a certain amount of money? Selling a property can come with a lot of fees. Sometimes there are fees that you didn't expect you'd have to pay. Usually this comes in the form of buyer credits. Sometimes buyers ask for closing costs. Now, it's up to the seller to agree or reject the buyers' request. But if your margins are slim, you might not be willing to accept that type of offer. I'd say out of all the factors to consider when accepting an offer this one should take least priority. It is difficult to plan for every situation. For example, what if a buyer is using an FHA loan. These types of loans require the property to meet minimum health and safety standards. If the property isn't up to snuff, the loan won't fund. Now, to get the property up to compliance you might have to spend thousands of dollars. This will eat into your profits and if you absolutely need to make a certain amount of money from the sale, you're much less likely to take this type of offer.
However, if you're blessed and don't have to worry about the bottom line too much, you're much more likely to accept a wider range of offers. You might help a buyer with closing costs. Heck, you might leave the buyer all your furniture just because you're a great person! You might also want new furniture at your new place too though.
Timing Of Closing
This factor should take more weight than some of the other factors. And this factor is different for everyone. Start off by asking yourself how quickly do I need to sell this property? If you don't have to close quickly, you're more likely to reject many offers. On the other hand, if you have to sell quickly, you're more likely to accept an offer. You're also more likely to accept an all cash offer. However, all cash offers usually come in below asking price. But the upside is that they can close much quicker than someone having to obtain a loan.
Buyer Profile
This factor is usually given less weight than the others. I think that that's a mistake. You should know who is buying your property. I'm not saying take them out on a date and get to know them, not at all. I'm saying you should know who they are as a buyer. Is this buyer able to close on time? Does this buyer have the necessary money for down payment and closing costs? Is this buyer coming in with all cash? That would be nice for a change! Does this buyer need to sell a property in order to purchase mine? Has this buyer submitted all necessary paperwork to obtain a loan. You'd be surprised at the frequency in which this happens. Buyers will put in an offer and hope and pray they can get a loan. All these are things to consider when evaluating a buyer.
Property Condition
The condition of your property will influence buyers willingness to submit an offer. What do I mean by that. Let's assume that your property is a fixer-upper. Many buyers don't want to do any work on a property they just bought. It's like buying a car. Do you want to buy a car and then immediately go out and buy new tires? Exactly. Buyers don't want that either. So you have to ask yourself, will I be willing to accept an offer lower than asking? All offers you might get might be coming in under asking price in that situation.
Now let's look at the other end of the spectrum. Let's assume you have a property in pristine condition. Would you be willing to accept an offer that comes in above asking? I'd venture to say heck yeah you would. What about an offer less than asking? I'm gonna have to say no to that one.
Repairs
Let's assume that an offer comes in above asking price but the buyer wants a lot of work done. The work is estimated at $15,000 but they only offered $10,000 above asking. How would you feel about that? That's $5,000 that you could have spent on a trip to Hawaii? Or this is another very common one. What if the buyer is getting a government backed loan. These types of loans specify that the property meet minimum health and safety standards. You might have to repaint and clean it up. How much bread is that gonna cost you? Are you going to do it yourself? These are things to consider when contemplating an offer.
Now, you're under no obligation to do any repairs. Although here in California you are mandated by law that smoke/carbon monoxide detectors be installed. Also the water heater has to be double strapped. That goes with any sale. This is not an option. Other than that you don't have to do a darn thing. However, if you don't do the repairs stipulated in a government backed loan, you might be missing out on someone who can close on your property.
Terms
This is the bulk of the offer. People like to focus only on sale's price. Yes, sale's price is important but also who pays for what and what is to be done when is also very important. Did you know that you could sell your house and then ask to live there for a certain amount of time rent free? Did you know that you could have the buyer pay for your closing costs? Did you know that you could have a one day escrow?
If you're not looking carefully at the purchase contract, you might overlook these key details. So what if an offer comes in above asking price if it comes with crazy terms. What if the buyer wants you to paint the house yellow and red before the sale closes? In California the purchase contract is made up of 32 sections. Price is only one of those sections. There are 31 other sections you have to be worried about. Each having their own obligations. Carefully consider all terms and act accordingly to your situation.
Conclusion
So you've read everything and you're like now what. Do I accept the offer or not? This is always ultimately up to the seller. However, I would advise you to consult with your real estate professional before accepting the offer. Take all elements into consideration before going with this offer versus another. And remember, take the offer as a whole and not just cherry pick the parts that you like.
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