We’re seeing unprecedented seller’s markets throughout Northern California in 2021. And with so many sellers getting multiple offers, sellers are wondering what to look for when evaluating competing offers.
Despite using the same basic forms, offers can vary wildly - and not just in price. Sellers need to dig a little deeper into the offer to consider more factors.
Here is a list of the top five things to look for when evaluating competing offers.
1. Offer Price
If your goal is to maximize your net profit, the offer price is the most obvious differentiator in a group of competing offers. You naturally want the offer price to come in as high as possible.
In areas like Oakland, where homes are selling for an average of 16.1% over the listing price (as of May 2021), you might want to hold off on accepting an offer that comes in at full price. Around 80% of homes are selling for more than the asking price right now, so you might get a higher offer in a day or two.
Some offers will include escalation clauses to automatically increase the offer price to match any competing bids. Keep an eye out for those in a hot seller’s market.
2. Contingencies
Contingencies are provisions that must be met before a real estate transaction can be completed. Contingencies can be sticking points, so the fewer contingencies an offer has, the more likely the deal is to close.
It’s common for buyers to include the following contingencies:
Financing: the buyer can cancel the offer if they can’t get mortgage financing.
Appraisal: the buyer can cancel if the house doesn’t appraise for a value equal to (or greater than) the offer price.
Home Inspection: the buyer can cancel if the home inspection uncovers issues the buyer isn’t willing or able to address.
Title: the buyer can cancel if the ownership of the property is disputed or called into question.
But in a competing offer situation, buyers might be willing to waive some of these contingencies and carry the risk themselves to make the process easier for you, the seller.
3. Buyer’s Mortgage Qualifications
Financing is one of the biggest obstacles for a real estate deal to overcome. When evaluating competing offers, ask yourself which buyer is most likely to secure the funding to close the deal.
All-cash buyers top the list because they don’t need to qualify for a mortgage at all. This is why sellers prefer cash buyers, all other things being equal. Next in the hierarchy is buyers with a large down payment and a pre-approval letter from a lender who has reviewed their finances. The large down payment is helpful because it allows these buyers to waive the appraisal contingency; if the house doesn’t appraise, the buyer will cover the difference between the appraised value and the purchase price (instead of expecting the lender to cover the risk).
Low down payment buyers are at the bottom of the list. There’s a very good chance they will be able to close as planned, but there is a higher risk of the deal falling apart if the house doesn’t appraise.
Make sure any offer you accept comes with a pre-approval letter from a reputable lender.
4. Additional Requests
Do any of the offers request anything more of you? Sometimes a buyer will request that certain property be included in the sale (like furnishings or window coverings). And sometimes a buyer will ask for the seller to cover some of their closing costs.
Most buyers in a hot seller’s market know better than to make additional requests when they’re competing with so many other buyers for so few homes. But it’s worth reviewing the offer to make sure there are no additional requests.
5. The Timeline
You should also compare timelines in your competing offers. If you want to move as quickly as possible, you want buyers who are willing to do a quick close. But if you need more time to pack and move, you might appreciate a buyer who’s willing to delay the closing or even rent the house back to you for a short time.
The Bottom Line
There are several important factors to consider when you’re evaluating competing offers. And you always have the option to counteroffer to win more favorable terms. That’s why you need an experienced real estate professional in your corner. Sequoia agents understand our changing market conditions and can help guide your decision to accept or counter offers, based on your unique circumstances.
Contact Sequoia Real Estate today to learn more about the selling process and get a custom price analysis for your NorCal home.