Criteria for Selecting the Best Offer
As the real estate market strengthens in Cambridge and Somerville home sellers are receiving multiple offers in many cases. Multiple offers are a positive outcome for a home seller. The challenge then becomes picking the best offer. The highest offer is usually the best offer, but not always. In this issue we discuss the criteria for selecting the best offer as well as the strategy for managing the process.
OFFER CRITERIA
PRICE
The most important offer criteria is price. The offer with the highest price is usually the best, however a slightly lower offer with no inspection contingency may be a better offer (see below). <br><br>
TERMS
Home Inspection Contingency
An offer without a home inspection contingency is stronger than an offer with this contingency. In our experience, offers are usually re-negotiated down after the home inspection. In some cases the buyer exercises the contingency and the seller is put in the uncomfortable position of putting the home back on the market.
Escrow Deposit
The typical escrow deposit in Massachusetts is 5%. A higher escrow deposit, such as 10%, usually indicates that the buyer is more committed to closing the transaction.
Tenants
A buyer that is willing to take a tenanted property with the tenants may be more attractive. Delivering a tenanted property vacant can be complex and time consuming.
Closing date
A closing date that best meets the seller's needs can be one of the deciding factors.
FINANCING
Obtaining a residential mortgage in 2012 can be very difficult. For this reason an offer with a mortgage contingency is less attractive than a cash offer. The reputation of the lender that provides the pre-approval letter an is another important consideration. Some lenders have a much better track record of closing loans on time than others. A good listing agent will be able to advise sellers about the pluses and minuses of lenders.
BUYER LETTER
In a multiple offer situation, buyers may submit a letter to personalize the offer. Although the price and terms of an offer are the most important criteria in the selection process the letter can be an indication of the buyer's commitment to the home. <br><br>
BUYER'S AGENT
Most offers are submitted by a buyer's agent. The reputation and experience of the buyer's agent can be one of the deciding factors. An offer from a buyer's agent that has a track record of transactions that close successfully is more valuable than an offer from a less successful agent.
MANAGING THE OFFER PROCESS
SETTING A DEADLINE FOR OFFERS
Setting a deadline for offers is one strategy that some listing agents use for managing a potential multiple offer situation. There are advantages and disadvantages to this strategy.
Advantages
Setting a deadline allows all of the buyers to be able to see the property and assures that all of the offers are reviewed in an orderly fashion. This strategy is well suited to tenanted properties where access is limited.
Disadvantages
Many buyers do not like being put under a deadline to make an offer and feel that the process gives the seller the upper hand. Some buyers will not make an offer if there is a deadline. Additionally, if no offers come in by the deadline, the buyers get the impression that the property is over priced. If no offers come in by the deadline it is imperative that the listing agent remove the deadline from the MLS description.
TIMING
Market data shows that the best offers come in the first week on the market. Any offer (assuming that it is market correct with reasonable terms from a qualified buyer) that comes in the first few days on the market needs to be seriously considered. Sellers that reject a credible offer early in the process usually regret it.
RESPONDING TO OFFERS
If there are multiple offers the seller has the option of responding in a number of ways:
Accept One Offer
If one offer is clearly better than the other offers and meets the seller's expectations countering the offer risks alienating the buyer. Accepting the offer as written in these cases can be the smartest option.
Counter the Best Offer
If the price and/or terms of the best offer do not meet the sellers expectations, the seller can counter the best offer.
Request Best and Final Offers
If there are several offers close in price and terms the seller can give all of the buyers the chance to submit a best and final offer.
OFFER CRITERIA
PRICE
The most important offer criteria is price. The offer with the highest price is usually the best, however a slightly lower offer with no inspection contingency may be a better offer (see below). <br><br>
TERMS
Home Inspection Contingency
An offer without a home inspection contingency is stronger than an offer with this contingency. In our experience, offers are usually re-negotiated down after the home inspection. In some cases the buyer exercises the contingency and the seller is put in the uncomfortable position of putting the home back on the market.
Escrow Deposit
The typical escrow deposit in Massachusetts is 5%. A higher escrow deposit, such as 10%, usually indicates that the buyer is more committed to closing the transaction.
Tenants
A buyer that is willing to take a tenanted property with the tenants may be more attractive. Delivering a tenanted property vacant can be complex and time consuming.
Closing date
A closing date that best meets the seller's needs can be one of the deciding factors.
FINANCING
Obtaining a residential mortgage in 2012 can be very difficult. For this reason an offer with a mortgage contingency is less attractive than a cash offer. The reputation of the lender that provides the pre-approval letter an is another important consideration. Some lenders have a much better track record of closing loans on time than others. A good listing agent will be able to advise sellers about the pluses and minuses of lenders.
BUYER LETTER
In a multiple offer situation, buyers may submit a letter to personalize the offer. Although the price and terms of an offer are the most important criteria in the selection process the letter can be an indication of the buyer's commitment to the home. <br><br>
BUYER'S AGENT
Most offers are submitted by a buyer's agent. The reputation and experience of the buyer's agent can be one of the deciding factors. An offer from a buyer's agent that has a track record of transactions that close successfully is more valuable than an offer from a less successful agent.
MANAGING THE OFFER PROCESS
SETTING A DEADLINE FOR OFFERS
Setting a deadline for offers is one strategy that some listing agents use for managing a potential multiple offer situation. There are advantages and disadvantages to this strategy.
Advantages
Setting a deadline allows all of the buyers to be able to see the property and assures that all of the offers are reviewed in an orderly fashion. This strategy is well suited to tenanted properties where access is limited.
Disadvantages
Many buyers do not like being put under a deadline to make an offer and feel that the process gives the seller the upper hand. Some buyers will not make an offer if there is a deadline. Additionally, if no offers come in by the deadline, the buyers get the impression that the property is over priced. If no offers come in by the deadline it is imperative that the listing agent remove the deadline from the MLS description.
TIMING
Market data shows that the best offers come in the first week on the market. Any offer (assuming that it is market correct with reasonable terms from a qualified buyer) that comes in the first few days on the market needs to be seriously considered. Sellers that reject a credible offer early in the process usually regret it.
RESPONDING TO OFFERS
If there are multiple offers the seller has the option of responding in a number of ways:
Accept One Offer
If one offer is clearly better than the other offers and meets the seller's expectations countering the offer risks alienating the buyer. Accepting the offer as written in these cases can be the smartest option.
Counter the Best Offer
If the price and/or terms of the best offer do not meet the sellers expectations, the seller can counter the best offer.
Request Best and Final Offers
If there are several offers close in price and terms the seller can give all of the buyers the chance to submit a best and final offer.