Sellers, some of you are receiving multiple offers on your property for sale. So what's a seller to do? How to choose the BEST offer?
Well, if the price (and total costs) net the same, select the offer with the most cash financing. For example:
- An all-cash offer is better than an offer with a 50% downpayment and 50% financing
- A 50% downpayment is better than a 20% downpayment conventional loan
- A 20% downpayment is better than a 3.5% downpayment FHA loan
"But why is an all-cash offer better than a financed offer," you may ask? "I'll net the same amount of money in the end, right?"
Yes the NET may be the same BUT there are other issues that Sellers must consider:
1. An all-cash offer can close QUICKLY (assuming the buyer has funds available immediately -- ask for proof of funds). Whereas, a financed purchase usually takes at least 30 days to close, and many times longer. And the faster you get your money, the sooner you can invest it in something else, or simply be relieved of the hassle of selling your house.
2. All-cash offers don't have financing CONTINGENCIES. Will the buyer's loan go through? Won't it? How can you be sure? After many years of real estate sales experience, I can say that a high percentage of purchases fall out of escrow due to financing issues. Such as:
- Buyer qualified earlier, but now does not (credit score changed; financial ratios changed; buyer bought a new purchase on credit)
- Lender changes their loan requirements (they shouldn't, but some lenders change in the middle of the loan)
- Buyer's rate lock expired and loan rates increased
- Lender goes out of business (yes, this has happend up to 1 DAY BEFORE close of escrow)
3. With an all-cash offer, the buyer is very confident that he can close escrow, so you the Seller can request a NON-REFUNDABLE earnest money deposit. However, a financed buyer usually insists on a refundable deposit, because they are at the mercy of their lender.
4. No appraisal is needed for an all-cash offer. This is a critical piece of the financing "puzzle". Lenders will require an appraisal to determine the house's value. Appraisals can kill a deal. How?
- An appraisal comes in LOWER than the amount agreed between buyer & seller. Now the buyer wants the seller to lower his price, but the seller refuses.
- An appraisal notes specific items on the home that are "red flags" for the lender's underwriting department, and they refuse to proceed until certain items are fixed, which the seller refuses to fix at his expense (FHA & VA lenders are notorious for this).
- The appraiser is from out of the area, is not familiar with that specific neighborhood, and therefore does a poor appraisal, which is questioned by the lender.
- Appraisals can take a long time to get completed, especially with the new HVCC laws, they are delaying escrow closing time-periods.
- The lender, for whatever reason, isn't satisfied with the appraisal, and orders a 2nd (or 3rd) appraisal to confirm the 1st one; and then uses the lowest appraisal value.
5. Fannie Mae loans will question certain things, such as "property flipping", and will not lend on a property that has been sold within the previous 90 days. But all-cash buyers don't have to worry about these restrictions.
6. All-cash offers eliminate a huge layer of documents, paperwork, red tape, government rules, and headaches for the Buyers, and save time.
Of course, TERMS and PRICE are not the only things Sellers considers when selling their house. Private sellers (not banks or corporate sellers) may care a lot about their wonderful family home, and may select a Buyer who is going to live in the house and take care of it, rather than an investor who will only rent it out.
But remember, Sellers: to get to CHOOSE the best offer, you must first have multiple offers! And "How to get Multiple Offers" is a topic for another blog!
Regina P. Brown
Broker, Realtor®, e-Pro
Author of eBook "Stop Foreclosure Fast: Solutions to Save your House"
Author of forthcoming book, "Virtual Office Guide for Business Professionals: Work & Profit from Home"
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