Real estate not always secured with highest bid
By Dian Hymer
Consumer Real Estate News
Most sellers would be delighted to receive multiple offers.
However, figuring out which offer to accept is not always as
simple as you might think.
Suppose you receive three 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 look
at price alone, you'd have no reservations about accepting the
highest offer.
However, there's more to consider about an offer than the
price. The $495,000 offer might be from a preapproved 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 cannot use this to back out of
the contract without risking losing his deposit.
The lender should have no problem granting the buyer a
mortgage for approximately 50 percent of the sale price, even
if the appraisal comes in low. The more cash down, the more
likely the lender will approve the loan.
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 an automatic out of the
contract. Even if he 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 that the buyer won't have enough extra cash to make up
the difference between the appraisal amount and the purchase
price.
The third offer could be contingent upon the successful
close of the buyer's home that is currently under contract. If
the deal on his house falls apart, the buyer can withdraw from
your contract without penalty. If this happens, you'll be back
on the market searching for a new buyer.
So, in terms of a risk analysis, the lowest price offer
appears to be the best offer. One option would be to counter
the lowest offer with a higher price, based on the fact that
you have two offers higher than his. Before making a counter,
however, consider that the buyer could say no and disappear
form the scene 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
simply ask for a quick close. A quick close could save you the
cost of interim financing, which would effectively put more
money in to your pocket.
HOME SELLER TIP: To simplify the task of comparing multiple
offers, make a chart including a grid of all the variables
that could effect your decision. On the far left make a column
for the offers. List them by the buyer's, or their agent's,
name. Then create a row at the top of the chart for the most
important elements of the offers. Each element will head a
separate column on the grid chart. Elements might include: the
price, the amount of the down payment, whether or not the
buyer is preapproved, the closing date and the contingencies.
When analyzing offers, the fewer the contingencies, the
better. Contingencies can complicate a contract by providing
more opportunities for a transaction to fall apart.
THE CLOSING: In general, you're looking for the highest
price, the quickest close and the least number of
contingencies. But, a lower-priced offer with a quick close
and few contingencies could be better than a higher priced
offer.
Dian Hymer is author of "House Hunting, The Take-Along
Workbook for Home Buyers," and "Starting Out, The Complete
Home Buyer's Guide," Chronicle Books.
Tuesday June 1 5:39 PM ET |
