Everyone has been reading or hearing something about how hot the real estate market currently is, how homes are selling for record highs and the competition for buyers is extreme. While that might not be the market in every location, it is the market locally for us as well as many other locations. Most sellers are receiving multiple offers and offers over their asking price. This is mostly due to supply and demand: there is a low supply of homes currently for sale for the number of buyers currently out looking to make a purchase. I thought I would give some insight on what sellers are considering when making the decision on which offer to accept and which to pass on.
A seller obviously wants top dollar for their home but there are other things that a seller does consider, like contingencies. So what is a contingency? Well if you look up the definition it says, “something that might possibly happen in the future, usually causing problems or making further arrangements necessary.” In a real estate contract, there are a number of contingencies:
- Financing – does the buyer need to finance the home purchase or are they able to pay with cash and if they do need financing, what type of financing are they using. There are government backed financing that most times are more strict with the home as well as buyer, for example FHA and VA. These types can require repairs that a seller might have to complete prior to the completion of the purchase.
- Inspections – there are a number of inspections listed on an agreement of sale that a buyer can request. For example, a whole house inspection, pest inspection, radon, etc. When a buyer requests an inspection, it can mean that an unforeseen item may come up in this inspection that the seller will be asked to repair.
- Sale of another property – when a buyer is a seller themself. This happens often when a buyer is selling their current home and is required to do so before they can purchase a new one either due to a financing requirement where they do not have enough income to cover two mortgage payments or they are using the funds from their sale towards the purchase of their new home.
Just like the definition states, all of the above contingencies have the potential to cause problems or make further arrangements or planning necessary.
- Financing vs. Cash – if the buyer needs to finance the home purchase, there are a number of things that can possibly happen that can cause problems. If for any reason the buyer cannot get their loan, the sale can fall apart.
- Inspections – if anything is found on any inspection requested, it will probably cause a problem making it necessary for further arrangements. Both parties would have to come to an agreement on what to do about anything found on the inspection. Does this mean if a seller rejects an offer with an inspection request that they know something is wrong with their home? Absolutely not. Most home inspections will find something wrong with a home, it is just typical. It can be a small minor thing to a major problem but even the smallest item can cause a sale of a home to fall apart if both parties can’t agree.
- Sale of another property – this is actually a big one because just like all of the above you now have a domino effect: if anything at all happens to the sale of the buyers’ home, it then trickles down to their purchase because if they need to sell in order to buy, obviously their purchase falls apart if their sale falls apart.
In short, a seller may accept an offer for less money if it had less contingencies.
Another item a seller may find appealing depending on their situation is a quick settlement, meaning that the buyer can purchase their home in 30 days or less. If the seller already has their move in place or maybe already even moved and purchased another home, a quick sale would be very appealing for that seller.
A large good faith deposit can be appealing for a seller. A good faith deposit or what most real estate agents refer to as an “earnest money deposit” is paid on each sale. The buyer pays this money upfront and the funds are held by the real estate broker until closing when the money is returned to the buyer to be used towards their purchase. So why is this important? These funds are a reflection of the buyer’s intent to purchase this home knowing that if they were to back out of the purchase, they would forfeit these funds to the seller.
Hopefully these items help you in understanding a little more about the home purchase process and how to consider what you want to include in your real estate offer. We are always available for questions you might have on your specific situation and we would love to help you with your home sale and purchase. Working with a knowledgeable and experienced agent is key to ensure you are protected as a buyer or seller.