If you’re selling your home and find yourself with the pleasing problem of having many offers from which to choose, you might be wondering how to pick the offer that is most likely to close. If it was as simple as picking the highest bid your life would be a lot simpler and this article would be a lot shorter but life is not simple and so this post is not short.
How Do You Pick The Offer That Is Most Likely To Close: To pick the offer most likely to close, review the buyer’s:
- Contingencies, especially those you would want to negotiate
- Payment method – Cash is always better, if not a pre-approval letter is better than a pre-qualification
- Available deposit
- Earnest money offer
- Proposed closing date – The sooner the better
There are, of course, many more details behind those bullet points so let’s take a look at specifics.
How To Pick The Offer That Is Most Likely To Close
At first glance, it might appear easy to pick the offer most likely to close. The person who offered the most for your home must want it the most so they are most likely to make it to closing, right?
For the majority of people, buying or selling a home is an inherently emotional process and as such some buyers allow their hearts to rule their heads. This can result in offers to purchase that are written with urgency and desire rather than consideration and objectivity. As a result, you cannot assume the highest bid will be the offer most likely to close.
So, instead of reaching for your pen and accepting the contract with the biggest number, review the following elements of each bid. Then you will be in a better position to choose the offer most likely to close.
An Important Note
None of these elements should be considered in isolation. There isn’t one single thing to look for when you are picking the offer most likely to close. Instead, look at every element in every offer and chose the one with the most positives.
Contingencies are the conditions in an offer that say “We will go through with the purchase if everything happens as we think it will” or “If this happens we don’t have to go through with the sale.”
Contingencies themselves are not a problem. The majority of buyers have contingencies in their offers with the most common being:
- Funding Contingency: This states that the buyer can withdraw from the sale, without penalty, if they do not obtain the financing required to pay for the home.
- Inspection Contingency: If the home inspector finds significant issues the buyer reserves to withdraw from the sale or renegotiate the terms.
- Appraisal Contingency: If the home is appraised at less than the amount offered the buyer can withdraw from the sale or attempt to renegotiate the sale price.
- Sale of Current Home Contingency: The purchase of your home will only go ahead once the buyers have sold their existing home.
- Title Contingency: If there are any issues with the title, the buyer reserves the right to withdraw from the sale without penalty.
A buyer is at liberty to include any other contingency they like so it is important for you to go through every offer and not assume that these will be the only five. Buyers have been known to include clauses as bizarre as “the sale is contingent on my paranormal investigator declaring the home free from ghosts,” and “I waive the inspection and appraisal contingencies but the home must be approved by my Feng Shu consultant.”
As a general rule, the more contingencies there are in an offer, the more opportunities there are for a buyer to withdraw from the sale so the fewer contingencies that are in the offer the better.
However, an offer should not be evaluated by the contingencies alone, there are other elements to review.
Method Of Payment
Generally speaking, a cash offer is more likely to close than one that is contingent on financing and a cash offer where the buyer waives the inspection and appraisal contingencies is even better.
One word of caution though, it is worth asking for proof of funds before accepting the offer. This way you know that the buyer genuinely has the ability to pay for your home.
For those offers which require financing from a lender you should look at, in no particular order, the following:
A Pre-Approval Letter
A buyer with a pre-approval letter has been to their lender and gone through the part of the application process where they provide evidence of income, debts, etc. The lender has verified this information and confirms that they will be willing to extend a loan of X amount of dollars – contingent on inspection and appraisal.
The pre-approval letter is as close to a guarantee you can get that the buyer will get their mortgage. It is different from a pre-qualification letter. No evidence is required for a pre-qualification letter so the lender is basically saying “This person says they have this income and these debs. If this is true they might qualify for X amount of mortgage.”
So an offer from a buyer with a pre-approval letter is more likely to close than an offer from a buyer with a pre-qualification letter, or with no evidence of available funding.
Earnest money is not the same as a deposit. Earnest money is the amount a buyer pays into an escrow account managed by a neutral third party. If the buyer withdraws from the sale, for a reason not covered in the offer, the seller receives the earnest money as compensation.
The more earnest money a buyer is willing to put on the line the harder they are likely to work to ensure the sale completes.
Buyers may not have a large deposit saved, especially first-time buyers so the size of the deposit alone will not tell you which offer is most likely to close. However, a buyer who has a larger deposit and is willing to put their own hard-earned money into the home may be a better bet than a buyer will a smaller deposit.
The Proposed Closing Date
Generally speaking, the sooner a buyer wants to close the more likely they are to close. Why? A shorter timeframe usually indicates an offer with fewer hurdles and a more motivated buyer. A longer purchase period with a later closing date suggests more potential hurdles.
What You Can Do To Make An Offer More Likely To Close
There are some things you can do to minimize the potential problems in the sale of your home and remove some of the points of uncertainty.
Have A Pre-Inspection
An inspection before you place your home on the market will not negate the requirement for the buyers to have their own inspection but it will give you a heads-up about any issues with your property which you can then use to alert potential buyers or make repairs.
Have A Pre-Appraisal
Again, the buyer will still need to have an appraisal but if you have your own before putting your home on the market, you can be assured that you are putting your property on the market at an appropriate price.
The fewer issues a buyer can find with your home the less potential for drawn-out negotiations or the sale falling through. By ensuring your home is in tip-top condition you minimize the chance of a sale falling through following the inspection.
Check The Title
This will ensure there are no nasty surprises when the title search goes ahead. It will also give you the opportunity to address anything that crops up before you place your home on the market.
Rather than going to the time and expense of the pre-approval and pre-inspection process you might decide to place your home for sale “as-is.” This basically tells a buyer that if they are making an offer, they will be doing so on the home as they see it and you won’t be willing to negotiate on repairs, etc.
Prepare A Full Disclosure
Before putting your home on the market work with your real estate agent to prepare a supplement to your listing that gives a potential buyer additional information. This will list any items you are or are not willing to leave behind when you move, details of any problems you are aware of and any other relevant info.
There is no one single element of an offer that makes it more or less likely to close. By preparing your home and performing all appropriate checks before your home goes on the market you will minimize the potential for problems that could delay your sale.
Then, you can review each of the elements above, consider each offer in its entirety, and chose the one which appears to be the most likely to close.
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About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
Check out the Full Author Biography here.
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