If you’re thinking of selling your home in the near future, the likelihood is that you will be faced with multiple offers. Over the past 6 months in Northern Virginia, it’s not uncommon to have anywhere between 4 and 20 offers per seller. With more buyers than there are homes on the market to sell, this is the new norm. Most experts believe the seller’s market will extend to the end of summer. What happens after that is uncertain.
The feeling is that as mortgage rates and home prices increase, there will be less qualified buyers and the market will correct itself. Still, for now, sellers look forward to getting the best offer on their home. Each seller has individual needs that need to be met. Still, there are factors that every decision-maker should be looking at. Here are 5 things sellers with multiple offers should look for in a sales contract.
1. Price and Escalation Addendums
Every seller’s motivation is different but the most important consideration is oftentimes PRICE. Most contracts will have a up front sales price that will be easy to compare with others. The tricky part comes in when there is an escalation addendum. This tells the seller that the buyers is willing to beat out a competitor’s sales price up to a certain price. This is specified on the escalation addendum along with the increments a buyer will increase by each time.
For example, let’s say Buyer A offers a sales price of $500,000 on a home with an escalation addendum up to $550,000 in increments of $2,000. Now, let’s say Buyer B offers a sale price of $500,000 with an escalation addendum up to $555,000 in increments of $500. This means the highest sales price comes from Buyer B and the offer is now $550,500. Buyer B matched the sales offer of Buyer A’s escalation up to $550,000 and increased it in an increment of $500. Your real estate agent will assist you in keeping track of this.
2. Financing
Depending on the situation. some sellers should also pay attention to how the potential buyer will finance the purchase of their home. Each seller has individual needs and some loans may take longer than others. Cash offers usually take the least amount of time. In March 2021, according to Northern Virginia Association of Realtors, cash sales accounted for about 12% of all real estate transactions in Northern Virginia. Conventional financing account for about 74% of all transactions. VA loans account for about 11% and FHA loans account for about 2%. Sellers will also look to see how much of a down payment a buyer is putting down; the higher the down payment, the more prepared a buyer appears to be.
3. Contingencies
Other important parts of the contract are contingencies. There are several, including home inspection, financing, and appraisal contingencies. Many buyers in Northern Virginia are waiving home inspections all together. This means they will NOT have a licensed inspector look through the house and request repairs. They will purchase the home as-is. This is a normal practice during this seller’s market. In ordinary times, a contract can be voided with no penalty if the buyer and seller cannot agree to terms for repairs.
The financing contingency means that the buyer is getting a loan to buy the home. It means that if their lender determines they are no longer qualified to handle the mortgage, the buyer may void the contract with no penalty. In this seller’s market, some buyers are able to waive the financing contingency. They are either paying with cash, are far along in the full approval process, or have other plans on how to pay.
If the financing contingency is waived, it means that if they do not go to closing, the Earnest Money Deposit (see # 5 below) goes to the seller. Waiving a financing contingency is one way for buyers to stand out to sellers.
And since homes are selling at much higher prices, appraisal contingencies are also being waived. The buyer’s lender orders an appraisal from a licensed appraiser to ensure that the amount of the loan is equal to or less than the value of the home. Buyers who waive this contingency must find the cash to make up this difference. In a more balanced market, if a home did not appraise, the seller and buyer could renegotiate the final sale price. Sellers with multiple offers prefer this contingency waived as it ensures the sales price will not be renegotiated.
4. Closing Date and Post-Settlement Occupancy
Sellers with multiple offers should also pay keen attention to the closing date. They may require a quick closing in order to have the cash needed to finalize on their next home. They may also request a post-settlement occupancy agreement (also referred to as rent-back) if they need extra time to pack their belongings and move into their new home. Note that lenders in Northern Virginia will usually only allow a rent-back for 60 days after closing if the buyer is using the home as a primary residence and not investment property.
5. Earnest Money Deposit
Buyers who put down large earnest money deposits (EMDs) get the attention of sellers and agents alike. Nothing says you’re serious about seeing a transaction through to closing like a large EMD. Obviously this option is only available to those with large savings.
For sellers with multiple offers to consider, these 5 items on a sales contract are important to take note of when considering which offer to accept. To make life a little easier for sellers out there, I’ve prepared a Comparing Sales Offers cheat sheet for you convenience. Please click below to get your FREE downloadable copy.
Also check out my YouTube video discussing this information …