There are several factors that the seller will consider when evaluating and comparing offers. The top 5 factors, in no particular order are:
- Your offer amount
- Your willingness to waive contingencies (ie. Inspection, Appraisal, Financing)
- Whether you are paying with cash or getting a mortgage
- Whether your offer is contingent upon you selling your current home
- The size of your down payment
Most of the weight will of course be placed on the dollar amount of the offers. In cases where there is a large disparity between offer amounts, the seller’s decision is typically an easy one.
However, in competitive markets which are very common today, multiple bids will be made at or above the list price. In these situations, strong consideration will be placed on whether the buyer is willing to waive any of the typical contingencies (i.e. Inspection, Appraisal, Financing, etc.).
The seller will also consult their Real Estate Agent on the strength of the pre-approval letter, as different lenders have different conditions for closing a loan specified in their pre-approval letters.
Sellers and their Real Estate Agents will also evaluate the likelihood that the buyer will be able to close in a timely manner.
Offers presented that are contingent on the buyer obtaining a mortgage are generally looked at as ‘weaker’ offers when compared to buyers that are willing to pay cash.
In these situations it is very common for a seller to accept an offer from a cash buyer that could be up to 3% lower. This is a function of the strict regulatory environment and tighter underwriting guidelines that have caused closings for financed properties to become unreliable.
Sellers and listing agents still lack confidence in a banks’ ability to deliver on the terms stated in their ‘pre-approval’ letters. As such, cash buyers have a much greater chance of winning the bid, even if they are not the highest bidder.
Often buyers will need to sell their existing home prior to closing on the new home. While understandable, this introduces some uncertainty into your bid, because of course that other transaction might not happen in time. This contingency generally weakens your offer.
Finally, the amount of your down payment can strengthen your bid. That's because it makes you a stronger borrower and more likely to be successful in securing financing. Loans with very small down payments have a greater chance of falling through because there is less "wiggle room" for unexpected things.
For example, if the home appraises for less than the offer price, the buyer will generally have to come up with additional funds to make up the difference. Borrowers that elect very low down payments normally do so because that's all they can afford. So in many cases, the borrower will not be able to make up the difference and the deal will fall through.
By understanding the factors that a seller considers when evaluating an offer, you can better position your offer to increase the likelihood that your offer will win out. If you'd like to discuss your specific situation and want advice on how to craft a winning bid, give us a call.