Why The Highest Offer Doesn't Always Win

The highest offer always gets the house, right? Wrong.

Read on to learn about four reasons why a seller may NOT choose the highest offer and why the other terms in the offer are equally as important as the price. 

CASH OFFERS

With an all-cash offer, there are no mortgage or lender involved, sellers can close on their homes faster, and there’s no appraisal to worry about. No matter how high your offer is or how solid your financing is, in the eyes of the seller, if you’re obtaining a mortgage, there is always the possibility of the funding falling through.

FINANCING

Another buyer could be more qualified with a larger downpayment or pre-approved with a more favorable loan program (such as conventional versus FHA financing, which is typically seen as a "riskier loan"). Choosing a buyer with stronger financing helps avoid fallouts before settlement. Sellers often prefer offers from buyers with strong pre-approvals (from local trusted lenders) and solid financial standing.

INSPECTIONS & CONTINGENCIES

Contingencies are negotiating tools that give you an opportunity to walk away without consequence. The most common contingencies are inspection, financing, and appraisal. Sellers typically prefer offers with fewer contingencies due to the fact that they could potentially cause a sale to fall through or cost them additional money.

APPRAISAL GAP COVERAGE

Even if an offer is high, it must align with the property's appraised value. Mortgage lenders require that homes be appraised before they’ll issue a loan and will only issue a mortgage for the value that a property is appraised for. If the appraised value of a property is lower than the sales price, the buyer will have to make up the difference themselves or ask the seller to lower the price. Appraisal gap coverage, where buyers agree to cover the difference if the appraisal falls short, can strengthen an offer's appeal.

Bottom Line

Ultimately, the "winning" offer balances a competitive price with favorable terms and realistic expectations. Working with a knowledgeable agent can help you understand these nuances and craft an offer that stands out for all the right reasons (hint: that's me).

If you are looking to buy a home and want an aggressive agent on your side, shoot me a message! I can help you navigate the complexities of our current market while ensuring you're comfortable and confident in your decision!

Post a Comment