You had an open house and got several offers – now what?
After the first open house, one of two things will happen: there will be someone who wants to buy your house or there won’t. There could be one person who wants to buy it or there could be several qualified people who all want to buy the home. When there are multiple people who want to buy your house, you’re stylin’. Real estate agents call this a multiple offer situation and it’s the best thing that can happen to you as the seller because it allows you some options. This is also one of the places where real estate agents can really show their value.
You and your agent will decide how you want to see the offers. You can see the complete multi-page offer documents or a summary. I like to make a spreadsheet showing all of the important information about the offers. You can sort the spreadsheet and prioritize the factors that are most important to you. Often the offer price is the most important but for some sellers it’s the closing date or type and number of contingencies. Important details include:
· Purchase price – this is the amount the potential buyer is offering to buy your home
· Amount of earnest money – this is how much money they’re prepared to offer as an initial deposit and how much they stand to lose if they walk away from the purchase for no reason.
· Home inspection contingency and amount –
Sidebar: What is a contingency? When buyers are making offers on your home, they usually want to make sure that if everything isn’t as they expect, they can cancel the purchase and get their deposit money back. These conditions are called contingencies and you can think of them as an “unless” so I’ll definitely buy your house unless…
There should always be a dollar amount and an expiration date associated with a home inspection contingency. Let’s say the buyer wants a $5,000 home inspection contingency. That means that if they have a home inspection and find more than $5,000 worth of problems, they can cancel the sale and get back all of their deposit money – as long as they notify you or your agent in writing before the expiration date that was in the initial offer.
This doesn’t mean that if they find a problem that will cost say $1,000 to fix, they won’t ask you to fix it or give them a credit. The home inspection is usually a time when buyers try to get back some of the money that they generously offered before. It is always the seller’s option whether or not to do these things but especially with a multiple offer scenario, you don’t have to do anything. If the buyer comes back and says: oh, we found this or that in the house and we want you to give us a $1,000 credit at closing so we can fix it, you can decide whether you feel It’s a reasonable request that any future buyer would have or whether the person is just trying to negotiate a discount.
Other types of contingencies work the same way: if this thing happens – or doesn’t happen, like when a buyer has to sell their own home first – then the deal is off, the buyer gets all of their money back and you’re back to square one.
· Cash or a mortgage – A mortgage will normally have a contingency saying that if the buyer doesn’t get the loan, the deal is off. You often won’t find out if there's a problem with buyer financing until about a week before the scheduled closing date.
· If a mortgage, amount of down payment – the more down payment, the less that can go wrong.
· Closing date – when does the buyer want to take possession of the home - so when do you need to move out.
· Other contingencies – things like insects, radon gas, lead paint, the buyer selling their home, or even something like: my brother has to see the house and give it the thumbs-up.
· Letter – has the buyer included a letter to the seller? It has become common practice for the buyer to write a ‘love letter’ to the seller telling the seller all of the things they love about the home and why the seller should definitely choose their offer over others. I have seen this really work for buyers but it’s a two-edged sword. Many sellers have an emotional connection to the home they’re selling - they may have raised a family there or done extensive renovation – and so they naturally want to pass the home along to someone who will love it as they have. That said, there are often details in offers and certainly in love letters that could reveal details about the buyer that invoke unconscious bias or outright discrimination. If, as the seller, you decide to read these love letters, please be aware of the potential they have to influence your decision for both negative and positive reasons.
At this point, you have three options; you can accept one of the offers, you can refuse all offers and hope for something better to come along, or you can ask everyone, or just the top few offers, to submit a new offer. We call this ‘highest and best’ because you’re telling people that they are in a competitive situation, that other people also want to buy the home so they should put their best foot forward and tell you the absolute most they’ll pay for the home with the least contingencies.
Depending upon how you filled out the agreement when you listed your home with the agent, he or she may be able to share information about the other offers with potential buyers. For example, I could say: we have multiple offers, some are at least 10% over the asking price with no home inspection contingency. Please submit an offer that is more attractive than that if you want to be considered. This can turn one great offer into several competing offers, giving the seller more opportunity to get the most favorable terms and strongest buyer. This negotiation is best done by a real estate agent with lots of experience who is an impartial party, presenting the situation without emotion or bias. When interviewing potential real estate agents to help sell your home, be sure to ask if they’ve taken any courses in negotiation and how comfortable they are navigating multiple offers.
In a multiple-offer situation, you won't normally be sending counter-offers because most of the offers are likley at or over the asking price. Instead, you can give people an idea of your dream offer and allow them to include those elements in their offers. For example, if price is most important and you'd like an offer over a certain amount, then you can let buyers know that. If it's more important for you to have a quick closing date with no contingencies, let buyers know that their ability to do that will give them an edge. Sometimes you'll want to complete the sale but rent the house back from the new owners for a period of time, many buyers are currently renting so they could accommodate that kind of scenario. Communication is key to getting the offer that best serves your needs.
Once you’ve received the final offers, you can evaluate the terms and choose the one that best meets the goals you’ve identified for selling your home. You will sign that offer to show your acceptance. The buyer will submit a check for the earnest money. The check is held in the listing broker’s (the broker that your agent works for) escrow account. Now you can start planning your move while you wait for the contingencies to be satisfied.
Selling your home is one of the top three most stressful life events. Be sure you choose an agent with a lot of experience who can gently guide you through the process and help you every step of the way.
In the next blog, we'll talk about what to do after you've accepted an offer, the home inspection from the seller's perspective and how to handle post-offer negotiation.
Please note: some aspects of this step of the home selling process are specific to Massachusetts, for example the use of offers, but all sellers should find valuable information.
