Home Sellers Need to Learn To Intelligently Evaluate an Offer to Purchase

Copyright © 2014- 2019  AUTHOR: Paul R. Marino, REALTOR®, e-Pro®

 

So far, you’ve done everything right. On the front end, the most important thing you did was establish an ask price that was competitive for your specific market. My previous post entitled "How To Intelligently Determine The Market Value Of Your Home" provides solid, no-nonsense advice on how to establish this figure. Your goal should be to sell your home “at market”, in a timeframe that does not venture far from the median days on market (DOM) figure for your particular locale.

 

You should know what this median DOM figure is for your particular town so you have some benchmark for comparison, and know what a reasonable exposure time looks like. As you recall from high school math, the median is that midpoint figure where half the properties are selling faster, and half are selling slower. If, for example, we examine the entire Rutland County, Vermont market over the past full year, this figure is stated at 122 days. Meaning, that half the properties were placed under agreement in under 122 days, and half were placed under agreement in more than 122 days.

 

If your property has been on the market for more than the median DOM figure, you may need to “recalibrate”. Translated, this means, go to my earlier post, and review the article titled: “There Are Only Two Things That Sell a Home – Price and MLS Exposure – PERIOD”. You’ve been exposed to the MLS, to Realtor.com®, to Zillow®, Trulia®, Craigslist®, and hundreds of web sites across the Internet. You’ve also got a dedicated web site promoting your property. You’ve got dozens of beautiful color pictures, video tours, virtual tours, on, and on, and on, and on. What could be wrong? Hmm…

 

It is important to know the market never lies. Buyers today are far more sophisticated than in days past. Like you, they also know what your property is worth. They have full access to the very same database (i.e. recently SOLD properties) that the appraiser will be using when they value your home for the lender. Buyers may not be willing to pay fair market value, but they generally do know what its worth. Even if they are completely uninformed and put forth an above market offer that is ultimately accepted by you, this does not solve your problem. There’s a little thing called the appraisal. If you have a no cash, or low cash Buyer, the lender is not going to lend beyond the appraised value. So the bottom line is, you can’t fool the market.

 

OK…so let’s fast forward just a bit. You’ve shown your property, and there is interest…as in, serious interest. As in, you’ve been notified of an inbound offer. With any luck, you may receive a simultaneous offer, and you may begin to feel overwhelmed. How will this be handled? Can I really do this? The answer is: “Of course you can.”  But this situation must be handled with great tact, diplomacy, and skill. None of which is beyond your capabilities, but you must be trained.

 

Notice of an inbound offer is always exciting. This excitement however can quickly turn to exasperation and despair, when you actually lay your eyes on the offer. Be mentally prepared for the worst. The offer may be low, as in very low, as in so low you feel the prospective Buyer has dealt you a gross insult, and affronted your honor and dignity. I make a lot of references to poker in my blogs, and for good reason. You can learn a lot from this game. Good poker players are experts at displaying a public face that is so neutral and unrevealing their opponents are unnerved by it. Learn to put on your “poker face”.

 

I want you to promise me something regarding how you react to offers. No matter how low the offer is, you will remain calm. You will not fire off a hostile email to the Buyer or Buyer Broker declaring the offer is “so @#$*#&%& low” it’s beneath your dignity. Always take the high ground. In some instances, the best counter to a ridiculously low offer may be to simply ignore it. Pretend it never happened. No reply whatsoever. Trust me, they will “get it”. If they are truly interested in the property, they will follow up. Lay low. Let them come back. If you reply, always keep it classy and professional. How about this: “Thank you for your interest in our property. After carefully reviewing the offer, we have elected not to move forward with negotiations at this time. Thank you and good luck in your home search.” The bottom line is this. You’ve done your homework. You know what your property is worth. You’re not giving it away.

 

It is important to recognize that when offers do start to flow in, no two offers are identical. Sure, the offer price might be the same, but every Buyer is different, and every offer to purchase is unique. Even in those situations where one offer price is higher than another, it does not necessarily mean the offer is better.

 

It is CRITICAL that you carefully evaluate the following for each offer in hand:

 

1] If not paying cash, does the Buyer have a “Pre-Approval” letter from their mortgage lender?

 

2] How large is the earnest money deposit? (bigger is obviously better. I am astonished to see $500K homes being placed under agreement with a paltry $1K deposit. Meaning, the Buyer can simply walk away from the transaction on a whim, and lose no more than $1K. Sorry pal, but you’re going to have to do better than $1K)

 

3] Does the Buyer have to sell another property in order to follow through on your purchase?

 

4] How much of a down payment is being made? Be very “leery” of 100% financing transactions with miniscule deposits, as it does not communicate financial strength. Not to say the Buyer is not holding back some cash in reserve, but you simply don’t know that.

 

5] Is the Buyer calling for any repairs, or are they asking you (the Seller) to contribute to closing costs or other concessions?

 

6] What kind of a closing timeframe is the Buyer asking for? Does this timeframe work to your advantage (in the event you are coordinating a “downstream” purchase of another property)

 

In a perfect world, you will be offered the ask price, with full “pre-approval”, a large deposit, sizable down payment, nothing to sell, no concessions requested, no physical repairs to be made, and closing exactly when you want. Sorry folks, this isn’t Disney World. The chances of getting everything you want are slim.

 

Be aware that countering offers is a little like playing poker. You just never know how far you can “push” a Buyer before they head for the hills. Know what your property is worth, and know (in advance of any negotiation) what the bottom line “no lower than” threshold price you will accept. Stick to this number, and don’t look back. Nothing spells “amateur” like a Seller that “waffles” during the negotiating process. Face your opponent squarely, and deliver your best counteroffer.

 

Two final pieces of advice: 1] Remember the old adage: “A bird in the hand is worth two in the bush”, meaning, a sure bet (even though lower in sale price) may be a smarter move, if other factors in the other offer are “shaky” or unproven; and 2] Attempting to squeeze every last dollar out of a transaction will often backfire. “Know when to hold’em, and know when to fold’em”. Good luck!