What To Do When You Receive an Offer

When you receive an offer: How will you know which offer is the best one for you? 

Your listing agent will be a big help here. They will understand and help you determine the merits and faults of an offer because — believe it or not — it’s not always about price. One buyer’s beautifully high offer might not look so good anymore, for example, if you discover that it’s contingent upon you moving out a month earlier than planned. Or, conversely, you may prefer speed over price, particularly if you’re moving to a new city. 

Your listing agent will have a sense of what you want financially and personally — and can help you determine whether the offer at hand satisfies those goals. Before the first offer rolls in, here’s what you need to know about the offer evaluation process, including the main factors that should go into making a decision — accept or reject? — with your agent. 

Five Important Things to Consider When Evaluating an Offer 

Want to fetch top dollar for your home and walk away with as much money in your pocket as possible? Of course, you do. You’ve gone through the time-consuming process of setting your asking price, staging your home, promoting your listing, and preparing for open houses — and should be rewarded for your efforts.  Your first instinct may be to just pick the highest bid on the table. But the offer price isn’t the only thing worth considering. When vetting offers, evaluate these five areas in addition to price: 

1. The Earnest Money Deposit 

One important consideration when weighing an offer is the size of the earnest money deposit. The EMD is the sum of cash the buyer is offering to fork over when the sales agreement is signed to show the person is serious (i.e., “earnest”) about buying your home. This money, which is typically held by a title company, will go toward the buyer’s down payment at closing. 

A standard EMD is 1% to 3% of the cost of the home (so, that would be $2,000 to $6,000 on a $200,000 house). If a buyer tries to back out of an offer for no good reason, the seller typically keeps the EMD. Therefore, the higher the earnest money, the stronger the offer. 

2. The Contingencies 

Most offers have contingencies — provisions that must be met for the transaction to go through, or the buyer is entitled to walk away from the deal with their earnest money. Contracts with fewer contingencies are more likely to close in a timely fashion. 

Here are five of the most common contingencies: 

• Home inspection contingency. This gives the buyer the right to have the home professionally inspected and request repairs by a certain date — typically within five to seven days of the purchase agreement being signed. Depending on where you live, you may be required to make home repairs for structural defects, building code violations, or safety issues. Most repair requests are negotiable, though, so you have the option to haggle over which fixes you’re willing to make. 
• Appraisal contingency. For a mortgage lender to approve a home buyer’s loan, the home must pass appraisal — a process during which the property’s value is assessed by a neutral third party. The appraisal verifies that the home is worth at least enough money to cover the price of the mortgage. (In the event the buyer can’t make their mortgage payments, the lender can foreclose on the home and sell the property to recoup all — or at least some — of its costs.) Generally, the home buyer is responsible for paying for the appraisal, which typically takes place within 14 days of the sales contract being signed.
• Financing contingency. Also called a loan contingency or mortgage contingency, a financing contingency protects the buyer in the event their lender doesn’t approve their mortgage. Although the timeframe for financing contingencies can vary, mortgage lenders report that buyers generally have about 21 days to obtain mortgage approval. 
• Sale of current home contingency. Depending on the buyer’s financial situation, their offer may be contingent on the sale
  of their home. Usually, buyers have a window of 30 to 90 days to sell their house before the sales agreement is voided. This contingency puts you, the seller, at a disadvantage because you can’t control whether the buyer sells their house in time. 
• Title contingency. Before approving a mortgage, a lender will require the borrower to “clear title” — a process in which the buyer’s title company reviews any potential easements or agreements that are on public record. This ensures the buyer is becoming the rightful owner of the property and the lender is protected from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents, or forged signatures. 

3. The Down Payment 

Depending on the type of mortgage, the buyer must make a down payment on the house — and the size of that down payment can affect the strength of the offer. In most cases, a buyer’s down payment amount is related to the home loan they’re taking out. Your chief concern as a seller, of course, is for the transaction to close — and for that to happen, the buyer’s mortgage has to be approved. 

Generally, a larger down payment signals the buyer’s financial wherewithal to complete the sale. The average down payment, according to the NATIONAL ASSOCIATION OF REALTORS®, is 10%. Some mortgage products, such as FHA and VA loans, allow for even lower down payments. 

If, by chance, the appraisal comes in higher than your contract’s sale price, the buyer with a higher down payment would more likely be able to cover the difference with the large amount of cash they have available. 

4. The All-Cash Offer 

The more cash the buyer plunges, the more likely the lender is to approve their loan. That’s why an all-cash offer is ideal for both parties. The buyer doesn’t have to fulfill an appraisal contingency — whereby their lender has the home appraised to make sure the property value is large enough to cover the mortgage — or a financing contingency, which requires buyers to obtain mortgage approval within a certain number of days. As always, having a sales contract with fewer contingencies means there are fewer ways for the deal to fall through. 

5. The Closing Date 

Settlement, or “closing,” is the day when both parties sign the final paperwork and make the sale official. Typically, the whole process — from accepting an offer to closing — takes between 30 and 60 days; however, the average closing time is 42 days, according to a report from mortgage software company Ellie Mae. Three days before closing, the buyer receives a closing disclosure from the lender, which he compares with the loan estimate he received when he applied for the loan. If there are material differences between the buyer’s loan estimate and closing disclosure, the closing can’t happen until those amounts are reviewed and approved. But this is rare. 

Some transactions can take more time, depending on the buyer’s financing. For example, the average closing time for a Federal Housing Administration (FHA) loan is 43 days, according to Ellie Mae. Whether you want a slow or quick settlement will depend on your circumstances. If you’ve already purchased your next home, for instance, you probably want to close as soon as possible. On the other hand, you may want a longer closing period — say, 60 days — if you need the proceeds from the sale to purchase your new home. 

When Should You Make a Counteroffer? 

Depending on the circumstances, you may be in the position to make a counteroffer. But every transaction is different, based on the particular market conditions and your home. In some circumstances, you can be gutsy with your counteroffer. In others, it might serve your goals better to give in to the buyer’s demands. Your agent can provide helpful insight about when and why a counteroffer will be the right thing for you. 

For instance: If you’re in a seller’s market — meaning that homes are selling quickly and for more than the asking prices — and you received multiple offers, your agent may recommend you counteroffer with an amount higher than you would have in a buyer’s market. 

If you choose to write a counteroffer, your agent will negotiate on your behalf to make sure you get the best deal for you. A caveat: In many states, sellers can’t legally make a counteroffer to more than one buyer at the same time, since they’re obligated to sign a purchase agreement if a buyer accepts the new offer. 

When Does an Offer Become a Contract? 

In a nutshell, a deal is under contract when the buyer’s offer (or seller’s counteroffer) is agreed upon and signed by both parties. 

At this point, the clock starts ticking for the home buyer’s contingencies — and for the sweet moment when the cash — and home — is yours. 

When it comes to evaluating offers, what’s good for the goose may not necessarily be good for the gander. One seller may be overjoyed with their offer, while another may be disappointed. 

That means, to figure out whether an offer you receive is “good” —and whether you should negotiate — you’ll need to do two things: 

1. Think back to your original goals and ask yourself whether this offer helps you meet them. 
2. Get advice from your agent, who can help get the best deal for your specific situation, wants, and needs. 

So what do you, the seller, need to know before negotiating with a home buyer? We’ve got answers to some commonly asked questions. 

What Should a Seller Prioritize? 

Before you start negotiating, you’ll want to know what you’re hoping to get from the buyer. Money is important. But it’s not everything. There are other factors to consider when crafting a counteroffer, particularly timing. So, sit down with your agent and have an open discussion about your goals. Do you want more money? A faster closing period? Fewer contingencies? When you review these types of questions with your agent before you respond to an offer, and have a crystal-clear sense of your priorities, the negotiation process will go a lot more smoothly. 

Who Has More Leverage? 

Ready to play hardball? Hold up, slugger. First, you have to consider your position in the field. How much negotiating power do you have? The answer depends on several factors. A lot depends on your local market conditions. If you’re in a buyer’s market — meaning the supply of homes exceeds demand from buyers — you may have to make some concessions to secure an offer. If you’re in a sellers’ market — and homes are flying off the proverbial shelves, selling at or above list prices — you may be able to persuade a buyer to offer more money for the house, for instance, or to let go of some contingencies (aka provisions that must be met for the transaction to go through). 

Your timetable will also impact whether you have the upper hand. If you’re not in a rush to sell, you may be free to negotiate more aggressively. If you’re in a time crunch because, say, you already bought your next home and don’t want to pay two mortgages at one time, your hands may be tied. In any case: Confer with your agent. They can help you objectively assess your position and determine the right negotiating strategy. 

How Long Can This Go On? 

Don’t worry. It may only feel like forever. When you make a counteroffer, the buyer can either accept the new offer, reject it, or make a new counteroffer. (Sound familiar?) This volley can go back and forth, and potentially end in a stalemate — unless you or the buyer put an expiration date on your counteroffer.

This can be a smart strategy for you as a seller because it puts pressure on the buyer to make a decision. It also gives you the ability to move on to the next bidder if the buyer tries to stall (chances are, they’ll do this so they can look at more homes without giving yours up). It’s not unusual for the first offer to be the best one — depending on market conditions, of course. And often, sellers see the most interest from buyers in the first month of the home being on the market. If you get a good offer right off the bat, start negotiating. You may get a better offer. On the other hand, you may not. 

Which Negotiation Tactics Are Most Useful? 

The actual negotiation is the job of your agent, who will be experienced in real estate deal-making. That being said, you should still strategize with your agent before they make that counteroffer for you. Here are five ways you can nab a better deal: 

1. Avoid making an emotional decision. It’s easy to get caught up by the emotional bond you’ve formed with your home. The backyard just might be where you got married. And that cozy office could be where your small business was born. But the important thing to remember is this: You have to detach yourself from your home. This is business — nothing more. 
2. Know your bottom line. Before moving forward, figure out what you need to get from the deal, at a minimum. That will give your agent a baseline when opening negotiations. 
3. Negotiate a “clean” offer. You want an offer with as few contingencies as possible since contingencies allow the buyer to back out of the deal. But some contingencies — such as an appraisal, an inspection, or a financing contingency — can’t be waived by home buyers who are obtaining mortgages because they’re typically required by a mortgage lender to approve the loan. Still, if you have multiple offers to choose from, you may be able to persuade a buyer to waive certain contingencies, such as a radon contingency or termite inspection contingency. 
4. Offer a home warranty. In a buyers’ market, a low-cost way to make a deal more appealing to a buyer is
   to offer a home warranty — a plan that covers the cost of repairing home appliances and systems, like the air-conditioner or water heater, if they break down within a certain period (typically a year after closing). Home buyers love this extra security blanket, and the standard one-year basic home warranty will only set you back about $300 to $500. 
5. Don’t overlook the closing date. Typically, the sale process — from accepting an offer to closing — takes about 30 to 45 days (sometimes a little longer). But in most cases, the faster you can close the better. Especially if you need cash to buy your next home. A quicker closing period has to be feasible for the buyer, however, and some types of home loans take longer to obtain than others. 

Rather than starting a bidding war, ask all buyers to come back with their “best and final” offer by a certain deadline (say, within the next 24 hours), and then choose the one that’s right for you. 

Remember: It’s Good to Give and Receive 

At the end of the day, receiving an offer is a good thing! It means you’re getting closer to a sale. But remember, you may have to give a little in the negotiations, too. 

Keep your head on your shoulders — don’t make an emotional decision — and you’ll be all the more likely to get what you want.