Selling a home usually involves a considerable amount of planning. And like many activities, with homeselling there is a beginning, middle and an end. So somewhere approaching the mid-way point in the homeselling process and well before you reach the ‘finish line’ of closing, you’ll receive at least one offer. But what happens then?
Questions 67 And 68
There are literally dozens of questions sellers can have about the process of homeselling upon receiving an offer. Some common questions are:
Is the first offer usually the best one?
Should I make a counteroffer?
What costs will I have?
How long will my property be off the market before closing?
How are Realtors and my existing home loan paid?
Real Estate 101
An offer tells you what a buyer is willing to pay and under what terms. There are essentially three options for you to consider once you receive an offer on your property:
2. Reject, or
It’s important to confirm the expiration date on any offer, in case the buyers may have other properties in mind. Sometimes, ‘if sellers snooze, they lose.’ You may want to address several items before responding to any offer you receive. These include:
- Confirm the offer includes a lender pre-approval or pre-qualification
- Determine if the offer is subject to the sale/closing of the buyer’s property
- Review specific terms within the offer that stand out or are unusual
- For legal questions, forward your offer to a real estate attorney for review
Is the First Offer Usually Best?
There are various factors to determine what constitutes the ‘best’ offer and that can vary among sellers. For some, the best offer is the highest price. To others, the best offer will involve price, but also other factors frequently important to sellers, like how fast the sale can close, or if there is no expectation that repairs will be requested.
Often, it’s virtually unknowable if the first offer is the best, particularly if your home has been on the market a very short time. While first offers frequently are the best, sometimes first offers are simply from faster moving buyers who are highly motivated, which is also usually a good sign. But it’s entirely possible that a second, third or fourth offer, if it does come in, may be from more qualified buyers and/or from those willing to pay a higher price under more generous terms. How can this be so?
Consider that during their property search phase, many home buyers take vacations or have other obligations. In addition, the Realtors of these buyers are similarly busy, as well. So it’s not uncommon for homebuyers ‘on the hunt’ to be unaware for the first week after your property hits the market. So unless both the buyers and their agent are available to tour your property at the same time, it will likely be viewed later, rather than when it is placed for sale.
In the meanwhile, other buyers who aren’t on vacation for the moment (or don’t have a sick child or other obligations) may be looking precisely when your home is placed for sale. This means that if the average market time is say, a month, it’s helpful to realize that if you get an offer the first week, you’re likely priced fairly close to the market. Will other buyers come along? It’s impossible to know with 100% assurance, but if your home is truly market-priced, other buyers are extremely likely to come along in due time.
After having ‘tested the market’ for a while with little action, if you then receive an offer, that may be a better indicator of whether the offer is likely the best. That’s because once you begin to significantly exceed the average market time for homes similar to yours, it’s likely that your home was not underpriced, but even possibly overpriced. That first offer you receive may very well be the best you’re likely to get, at least without making a price change or waiting a significantly long time.
When to Consider Accepting an Offer
If the offer is at, above, or close to your asking price, plus the buyer(s) appear well qualified and there are no major factors of concern, it’s frequently a good idea to consider accepting the offer. Don’t be in a hurry, but don’t tarry too long either. And if other buyers have expressed interest, now may be a good time for your Realtor to reach out to other agents and let them know they may miss out. Sometimes that will ‘jumpstart’ other offer activity and even engender a ‘bidding war,’ the dream of many homesellers.
When to Consider Counteroffering
It’s common for buyers to make an offer that’s close, but not quite workable. This is why counteroffers are used. Items contained in a counteroffer change and supersede those from the original offer. Examples of changes might include price, or having three days to move out of the house after closing instead of one, perhaps altering the closing date, whether or not an heirloom chandelier is included with the sale, or a myriad of other factors. If the offer is close to what you want and you aren’t aware of other qualified buyers willing to better the offer you’ve received at that time, a counteroffer can make a great deal of sense.
Philosophy of the Counteroffer
One helpful philosophy to adopt when you consider using a counteroffer might be to ask yourself how you’ll feel if the buyers simply ‘walk away’ and purchase a different home. If you’d regret that scenario, then it may be best to simply accept the offer as written. However, if there is something in the offer you seriously need changed and you won’t ‘second guess’ yourself afterward, that’s often a clue to make a counteroffer. One other approach (with both an upside and downside) is to accept the offer as written without changing it with a counteroffer, then follow up with an addendum. However, it’s important to consult your Realtor to discuss appropriate options and risks.
What if the Offer Seems Low?
If you receive a seemingly low offer and your property has been on the market for longer than the average market time, consider having your Realtor research similar properties that closed since yours was placed for sale. This can help confirm if the seemingly low offered price is truly low, or perhaps closer to the market than you first thought.
You might also review homes now with a pending sale, but not closed. Because while closed sales provide specific selling price information, the fact that a property now has a sale pending suggests it may have been priced ‘close to the market’ and can therefore be helpful in confirming if your current offer is ‘in the ballpark,’ or perhaps a bit lower than the market might bear.
When to Consider Rejecting an Offer
If the offer is very low, from unqualified or marginally qualified buyers, or perhaps contains contingent clauses you simply prefer not to deal with, a simple rejection may be your best response. Such ‘closing the door’ on an offer is likely to end the discussion. However, don’t be surprised if the same buyers return with a better offer, particularly if they’re really motivated.
Time Keeps on Slippin’…
In our region, it’s routine to receive offers containing a 10 business day home inspection contingency. If your offer contains one considerably longer, like 20 days or more, understand this provides the buyers with a huge ‘weasel clause’ where they can potentially ‘back out’ with little inconvenience or expense on their part. This means while your property is ‘tied up,’ the buyers risk very little, since in most inspection contingencies, the return of earnest money is ‘baked in’ to the offer.
In this scenario, your property is off the market and unavailable for purchase by other, possibly stronger and more motivated buyers. This makes a good case for limiting the home inspection time period to a reasonable amount. But being ‘off the market’ to other possible buyers for up to 10 business days is a calculated risk and considered a necessary part of selling, as the buyers perform their due diligence, such as inspections and review of the preliminary title report.
Back Out Boogaloo
It’s difficult to prevent with total confidence, but if your buyers ‘back out’ of the transaction once you accept their offer, that added time on the market while you search for a replacement buyer is an additional expense in hassle and potential hard costs. That’s because with a ‘sale fail,’ you continue to pay property taxes, plus possibly mortgage payments and insurance, too. And if interest rates creep up in the meanwhile, you may lose the best chance to find very many qualified buyers. Such situations create what is called opportunity cost, which is the price you end up paying when making one choice over another. Namely, by choosing one option, you lose out on what could have happened with the other foregone choices.
As with Daniel Boone, the great frontiersman and marksman whose father reportedly gave him only one bullet for bringing home dinner, try to ‘make your shots count.’ This means vet the first offer and buyers you choose to work with carefully. Because while you’ll most certainly get a second chance with another if the first buyer doesn’t works out, it’s usually more pleasant to make the first offer work that you accept.
The Problem of Price
A ‘good offer’ can be expected to approximate the list price. This confirms you probably priced the house correctly. If the offer is less than you hoped for, again, consider it as a whole. Perhaps the buyer is assuming some of the closing expenses. Consider possession and financing terms, as well. If you can’t get past the difference between what you’re asking for your property and what’s being offered, you might also consider appealing to fairness by ‘splitting the difference.’ Some sellers agree with the theory of ‘I’ll meet you halfway, that’s better than no way.’
A Sample Case Study in Reviewing Offers
Once you receive an offer on your house, it’s important that you and your agent review it carefully. A general principle to keep in mind is to consider each offer as a whole and here’s why. Let’s say you receive two offers. One offer from Buyer #1 is for your full asking price. Another offer from Buyer #2 is for $3,000 less than asking price. At first glance, there may seem to be little question about which buyer to work with. The difference is all in the dollars, right? Not so fast.
That’s because upon looking closely, your Realtor notices a few potential game-changing factors. For while Buyer #2’s “less-than-full-price offer” isn’t quite the figure you’d hoped for, Buyer #2’s offer gives you an extra two weeks of rent-free possession of the property after the transaction is closed. That alone could provide you with two weeks of less stress for moving out, which is certainly worth something to many homesellers.
Then when reviewing the seemingly full price offer from Buyer #1, you realize she’s asking for $8,000 in seller-paid closing costs. On the other hand, Buyer #2’s offer asks you to pay for none of his closing costs. On top of that, Buyer #1 hasn’t sold her home yet, so her offer is also subject to the sale and closing of her property. As a result, Buyer #1’s offer now looks ‘iffy’ at best. The lesson? Look beyond the initial price and review the entire offer.
What Costs Will I Have?
When you receive an offer, your Realtor can provide you with a seller’s estimated net sheet. This itemizes your costs and provides you with an approximation of the amount you can expect to receive at closing. Homeseller costs can vary, but typically include the real estate commission, usually only paid upon the successful close of your home sale. Other usual fees in the estimated seller’s net sheet include title insurance, plus title company escrow and recording fees, along with any remaining taxes not yet paid and any existing home loans you may have on the property.
How Long Will My Property Be ‘Off the Market’ Before Closing?
This is a great question and the short answer is ‘it depends.’ To be clear, the term ‘closing’ typically connotes the transfer of funds from buyer to seller, along with a near simultaneous recording of the deed. Because a home purchase involving a mortgage lender can easily take a month or longer, the closing date is often dictated by completion of the appraisal, loan underwriting and processing.
Short & Sweet
If a cash buyer makes an offer and the transaction either goes swimmingly, and/or there is a short ‘due diligence’ period, it may be possible to close a home sale within ten days, or even less.
Thinking About Selling?
Do you have homeselling questions? For a free consultation and to learn what your Oregon property could sell for in today’s market, contact your Oregon real estate professional, Realtor Roy Widing using the convenient form below.