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Congratulations! You Have An Offer On Your Home!

It’s easy to get excited about getting an offer, but I caution you not to be too eager to accept just yet.  There are a few things you will want to consider.

The Terms Of The Deal Matter As Much Or More Than The Purchase Price

The purchase is pretty cut and dry until you get into the realm of being asked to pay some, or all, of a potential buyer’s lender fees, closing costs, title insurance, and pre-paid items like first year tax and insurance escrows. Tax prorations and possible credits due a new buyer at closing will also impact your bottom line. My point is, the terms of deal matter as much as the purchase price.

Closing, Occupancy, Contingencies

Other terms to negotiate are the closing and occupancy dates.  You will want to be sure that what the buyer wants is acceptable to you.  Another consideration is whether the buyer’s offer is contingent upon the sale and closing of their current home.  Your agent can do some investigative work to get a sense how realistic it is that the buyer’s current home will sell and close in a reasonable amount of time.  

More About Paying Some Or All Of A Buyer’s Closing Costs

Many first-time buyers are going to be obtaining FHA financing.  The reason is that FHA backed loans currently require a down payment of just 3.5%.  It is very unusual for young people today to have any more money than that on hand for a down payment.

The challenge is that closing costs required to get an FHA mortgage can easily total as much or more than the down payment itself.  Legally, a seller can pay a buyer’s closing costs and pre-paid items totaling a maximum of 6% of the selling price. The actual percentage tends to drop as the purchase price goes up.  Closing costs may still run $3000 or so on a $50,000 sale which is 6%. ($50k X .06 = $3000)

A Win/Win Counter-Offer

If your house is competitively priced, and you receive an offer that asks you to help with closing costs, it is entirely within your discretion to make a counter offer high enough to cover the costs and preserve the net proceeds you require.  If you receive an offer for $100k asking you to pay $5k in buyer closing costs, consider a counter offer of $105k and pay the costs. As long as the house appraises, you are both happy.

Ask For An Estimated Seller Net Sheet

A seller net sheet is a simple spreadsheet that shows the purchase price of the house and an accounting of your selling expenses including seller paid closing costs, local taxes, conveyance fees and credits, professional service fees due your listing brokerage, and miscellaneous fees like deed preparation.

The beauty of a well-prepared seller net sheet is the ability to set multiple offers, and possible counter offers, side by side so you can compare them.  You may find when comparing offers that on the surface, a lower purchase price may ultimately put more money in your pocket depending on the terms.

Sometimes The Highest Offer Is Not The Best Offer

In a more extreme example, a cash offer that nets you less than a competing financed offer, may be a better choice.  Depending on your situation, the benefit of closing quickly and cleanly for relatively less money may be worth it when compared to the demands that may arise with a financed transaction.

Make Sure The Buyer Can Get A Mortgage

The last and perhaps most important item you should expect to receive with an offer is a prequalification letter from the buyer’s lender.  If the buyer is paying cash, you have every right to request to see their proof of funds as well. This is generally in the form of a bank statement.  In the event that your buyer is bringing a large down payment to closing, it is entirely appropriate to request proof of funds for the down payment, and their mortgage prequalification letter.

Pre-Qualified Buyers Vs. Pre-Approved Buyers

Being pre-qualified for a mortgage is not the same as being pre-approved.  A prequalification letter generally means that the buyer’s lender has pulled their credit and verified their technical ability to obtain a mortgage.  It does not necessarily mean that they have sat down with the buyer and gone over their bank statements, pay stubs, and W2’s to verify their income.

Final Loan Approval

Final loan approval requires a verification of income and credit worthiness, as well as a satisfactory appraisal of value verifying the home is worth at least as much, if not more, than the mortgage amount.  Once the lender completes their due diligence, a clear-to-close (CTC) will be issued and the closing scheduled. Verifying a buyer’s ability to close up-front is critical. The last thing you want to do is to go into contract with someone who cannot close and lose valuable marketing time.

Care To Learn More About Becoming A Home Selling Genius?

Take 10 minutes and complete the Home Selling Genius Mindset Scorecard at www.HomeSellingGenius.com.  I guarantee it will be time well spent.  And, after you complete the scorecard, I will email you a link to a FREE download to my latest book Your Guide to Becoming a Home Selling Genius – The Eight Mindsets That Make The Difference Between Home Selling Success and Disappointment.