Getting an offer on your home is a big moment and possibly one of the most exciting steps in the selling process. But before celebrating, it’s important to look beyond the offer price. As any experienced realtor will tell you, there are often several important things other than price to consider when evaluating an offer. In a recent article from HouseLogic.com, walks sellers through five key factors, helping homeowners make confident decisions with guidance from a trusted professional.
Earnest Money Deposit.
One important consideration 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. This shows the person is serious (i.e., “earnest”) about buying your home. The money, which is typically held by a title company, will go toward the buyer’s down payment at closing.
A standard EMD is 1 percent to 2 percent of the purchase price of the home, according to realtor.com. (So, that would be $3,000 to $6,000 on a $300,000 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, and it can hit 10 percent, reports Realtor.com.
Contingencies. Most offers have contingencies — provisions that must be met for the transaction to go through. If the transaction falls through, the buyer is entitled to walk away from the deal with their earnest money. Contracts with fewer contingencies are more likely to reach closing and in a timely fashion.
Here are five of the most common contingencies:
1. Home inspection Contingency. This gives the buyer the right to have the home professionally inspected and to request repairs by a certain date. The time frame is 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.
2. Appraisal Contingency. For a mortgage lender to approve a home buyer’s loan, the home must pass appraisal — a process during which a neutral third party assesses the property’s value. The appraisal verifies the home is worth at least enough money to cover the price of the mortgage. (If 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 occurs within seven to 14 days of the sales contract signing.
3. Financing Contingency. Also called a loan contingency or mortgage contingency, a financing contingency protects the buyer in case their lender doesn’t approve their mortgage. The loan contingency period is typically contracted to last 30 to 60 days and must be agreed on by the buyer and seller in a purchase contract
4. 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 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.
5. 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. It also protects the lender from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents, or forged signatures.
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 lender has to approve the buyer’s mortgage.
Generally, a larger down payment signals the buyer's financial wherewithal to complete the sale. The average down payment in 2023 was 8 percent, according to the National Association of Realtors. 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.
All Cash Offer. The more cash the buyer plunks down, 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. Nor does the buyer have to comply with a financing contingency, which requires them to obtain mortgage approval within a certain number of days. As always, having a sales contract with fewer contingencies decreases the ways the deal can fall through.
Closing Date. Settlement, or “closing,” is the day both parties sign the final paperwork and make the sale official. Typically, the whole process — from accepting an offer to closing — takes 30 to 60 days.
Some transactions, such as those involving government-backed loans from FHA, VA, and USDA, may take closer to 60 days because of the additional buyer paperwork.
Three days before closing, the buyer receives a closing disclosure from the lender, which they compare with the loan estimate they received when they applied for the loan. If the buyer’s loan estimate and the closing disclosure differ materially, the buyer must review and approve those amounts before the closing can happen. But this is rare.
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 sale proceeds 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 cases, you can be gutsy with your counteroffer. In others, it might serve your goals better to go along with the buyer’s demands. Your agent can provide helpful insight about when and why a counteroffer will be the right thing for you.
Navigating offers can feel overwhelming, but with the right guidance, sellers can make decisions that align with both their goals and the realities of the market. Realtors are here to help you evaluate every part of an offer, not just the price, so you can move forward with confidence. #That'sWhoWeR