How to Choose Between Multiple Offers on Your House
It’s a seller’s market—make sure you’re getting the best deal
You’ve updated the kitchen, added a second bathroom, and landscaped the yard. Now, after increasing your home’s value, you’re ready to sell your home. If you’re selling your home during a seller’s market, you may receive multiple offers from people who would love to call your house home. Here’s how to choose the right bid when you have multiple offers on your house.
The Highest Offer Isn’t Necessarily the Best Offer
While the highest offer is often most attractive at first thought, it's not always the best offer, depending on the circumstances. For instance, if your highest offer comes with a low down payment (say, less than 5%) and/or financing contingencies, there's a risk that the potential buyer's financing might fall through before closing. In this case, you might want to accept a lower offer with fewer financing contingencies and/or a higher down payment.
Additionally, many offers come with inspection contingencies that can result in the seller needing to spend thousands of dollars in repairs or lose the offer. For this reason, some buyers might choose a lower offer with fewer (or no) inspection contingencies.
It's also helpful to consider the offer's proposed closing date and whether it aligns with your needs. For example, your highest offer might want to close in 15 days, while a lower offer might give you 90 days until close. Depending on your circumstances, the lower offer with a longer close date might work best for your needs.
1. Consider Buyers’ Circumstances
The more contingencies, the longer it may take to sell your home. Consider the buyers’ circumstances and contingencies when weighing multiple offers. Compare the contingencies of each offer, which are the arrangements of an agreement that need to be met before either party can finalize the sale. Some buyers may have multiple types of contingencies in their offer, whereas others may be willing to waive them.
Some buyers may be relying on selling their own home to go through with their offer to buy yours. This circumstance, often called a sales contingency or home sale contingency, means buyers have typically 30 to 90 days to sell their home. If the buyer doesn’t sell their home in time, your sale can also fall through. You may want to consider offers without home sale contingencies, even if those offers are a slightly lower dollar amount.
Many offers also include financing contingencies, which typically give buyers a specified number of days to apply for and receive approval for a home loan. If they don't receive the loan, the buyer can back out of the contract and reclaim their earnest money. This is why all-cash offers (aka offers without financing contingencies) are typically most attractive to sellers.
An appraisal contingency is another factor to consider. Appraisal contingency terms vary, but they generally stipulate that the buyer can back out of the sale if the home is appraised for less than the selling price. This is a particularly important contingency in hot markets where homes are often selling for well over asking price.
2. Think About Closing Dates
You may be looking to sell your home quickly, or perhaps you want more time to finish building or renovating your new home. Keep closing dates in mind when choosing a buyer. Closing dates typically range from 30 to 90 days, and buyers may be willing to opt for quicker inspections if you’re hoping to sell fast.
3. Give Preference to Pre-Approved Over Pre-Qualified Buyers
Buyers may be either pre-qualified or pre-approved, but you should give more consideration to offers from pre-approved buyers. Pre-approval means the buyer has already had a loan officer give an in-depth review of their verified finances and has a better estimate of how much the buyer can borrow to purchase a home. A buyer who is pre-qualified has a less extensive review of their self-reported finances and a less specific estimate for how much they can borrow.
4. Pay Attention to Each Buyer’s Communication and Flexibility
Selling a home can be a lengthy and complicated process, but working with a buyer and a buyer’s agent who are communicative and flexible can speed the process along. It’s also a good sign if a buyer is open to negotiating with you on details like closing dates or contingencies to make both parties happy with the deal.
5. Weigh Late Offers
Depending on local laws, you may be able to include a statement on accepting late offers after selecting a buyer in your contract. This contract addition means that if you select a buyer and start working on an agreement without officially signing the contract, but a late offer comes in at a much higher rate with agreeable terms, you can take the better deal. Hire a listing agent to discuss your options for accepting late offers.
6. Don’t Forget About Earnest Money Deposits
Earnest money deposits, also called good faith deposits, are part of the buyer’s down payment and usually account for about 1% to 3% of the home’s cost. Buyers can offer earnest money deposits as an upfront payment that the seller keeps, even if the buyer backs out. Higher earnest money deposits are usually a sign that a buyer is serious about closing the deal.
7. Understand the Buyer’s Financial Situation
Especially in a seller’s market, you might receive some all-cash offers for your house. This type of offer means that a buyer is in a financial situation that doesn't require them to get a loan to finance the home. These offers usually have minimal contingencies, plus there’s no time spent on applying for or preparing a mortgage, so the settlement comes faster.
However, just because a buyer can't offer all cash doesn't mean they're not in the financial position to close on the home. For instance, if a buyer offers a high down payment, say around 20%, there's a good chance that they can afford to close on the home.
Additionally, some buyers give offers wherein they still agree to buy the home in the event that it's appraised for lower than the selling price, which is another indicator that they're likely to complete the purchase. It's also a good idea to research the lender that the buyer is working with, ensuring they have a good reputation and positive testimonials from previous clients.
8. Negotiate and Keep an Open Mind
Choosing from multiple offers for your house all comes down to negotiation. You’ll need to consider whether or not you’re open to meeting contingencies, like waiting for a buyer to sell their own property or making repairs before the settlement. Time is also a factor, as you may require more time before moving into your new home, or you may want to sell your house fast. Don’t be afraid to negotiate with buyers, letting them know you are considering higher offers and giving interested parties a chance to sweeten the pot by waiving some contingencies or increasing their offer amount. You should also keep an open mind and choose a buyer that you connect with, like someone who has a personal tie to the home.