You are a homeowner. You’re upgrading to a bigger house because you just had kids. You need to sell your house for top dollar to buy the new one. You get 9 offers on your $500,000 property the first weekend you’re on-market --- how do you differentiate these offers and pick the very best?
It’s a fairly easy task, actually. You as the Seller need to consider four factors:
Sale Price – You want the highest sales price possible
Time to Close – You want the shortest timeframe possible
Flexibility – You want someone that is flexible on certain terms depending on your circumstance (i.e. free rentback of 30 days, ability to move close date if needed, appraisal gap coverage, extension of timelines if overly busy, life events, etc.)
Financial Qualifications of Buyer – You want someone that is highly qualified and has the best chance of following through with closing on the deal
***There’s technically a fifth factor, but I’ll get to that later. It’s typically not a factor until you start receiving offers
Take a look at your own circumstance and prioritize. There are direct monetary correlations between these factors, as well. If someone offers a quick close (let’s say 10 days) in all cash (better than a 20% down payment offer) most buyers would come in at a lower price point because they believe they’re such a “surefire” client. Let’s call this a $475,000 offer, 10-day close, 100% down.
The same is true of a buyer that comes in with extremely flexible terms (30-day close and give the client a 60-day lease back for FREE), extremely qualified (putting forth a 40% down payment), and come in at a lower sales price. This offer is $485,000 offer, 30-day close, 60-day rentback, 40% down.
The less qualified a buyer is, the higher they tend to offer in purchase price. Low qualifications (5% down payment), normal closing period (30 days), and a high purchase price to insight you as the Seller to take a chance on them ($505,000). They also wrote you a pretty sappy, emotional personal letter --- and we in the industry refer to these as the “Love Letter”. UUU-gggghhhhh!! This is where the fifth factor starts coming into play: sentiment.
So the other 6 offers we haven’t discussed are all similar iterations of the other offers, so you ignore them and work with the ones you’ve already been presented by your broker. ***This is why it is a best practice as a BUYER to be ‘first to the table’ when it comes to making an offer, even if you know it doesn’t contain the best terms. You build more rapport faster than your competitors.***
Now, the “Love Letter” is sitting in your email inbox, and you’re thinking “Should I really read this?” --- well, that’s up to you, I suppose. My advice would be that if you don’t want to derail yourself from the end goal (whether highest sale price, quickest close, most flexibility, or best qualified buyer) then DON’T READ THE LOVE LETTER!
It can sway even the blackest of hearts… I’ve seen it happen with some of my clients! They’ve lived in a house for 25 years and don’t realize they have an emotional attachment until they read the Love Letter. They read how a new family is going to come in and raise their family there, and how they love the house, and they even tell you what room they plan to change into a nursery. Sappy, emotional stuff, and you should read it at your own risk…
You are potentially opening yourself up to a discrimination lawsuit by not choosing this person based on their Love Letter. There are several protected classes in our country, and if there is a mention of sexual orientation, race, familial status, or they’re divorced/married, someone could say you decided on another offer because of the things they said in their letter and not because they were the worst offer in the pile. It’s a sticky mess. This is why some brokers now put “Not accepting Personal Letters” in their listing advertisements.
The other risk to you as a Seller would be that you actually accept the emotional appeal, and take on a riskier offer because of the way they presented themselves. (Now, I’m not heartless, I would love to sell my house to the ideal person I envision living here, I just don’t want to sacrifice my priorities in the process!) You can get totally derailed if you’re not careful, and your broker should have your back if you do make a potentially dumb decision.
So here are the kinds of offers you’re going to see in a multiple offer situation in a hot market:
The Lowball – This offer is a waste of everyone’s time. If all your other offers fall-through, these guys are your last choice. Extremely low sales price, quicker close, not much flexibility, highly qualified buyer.
The Gamble – This offer comes without any safety net, and leaves you hanging in the wind due to Appraisal. These offers have a very HIGH sales price, normal close, not much flexibility, and are well-qualified buyers (maybe 15-20%) but have not offered to cover any of the difference in case the Appraisal comes back low. If you’re okay with taking a risk, this isn’t your worst option necessarily.
The Flexible One – This buyer is typically the one that I recommend taking, or at least giving them a chance to try and meet the “highest and best” offer and making it more appealing. This offer will be flexible on the terms and give you everything you want on a timing/closing basis, even lease back terms, but they generally end up being under ask price offers. If you are happy with the flexibility they have, it’s sometimes more important than getting another $6,000 in sales price. But if money is your main driving factor, this probably isn’t the offer you’ll take.
The Quick Close – This offer is usually from an interested investor, who does NOT lowball you, but DOES hit you with a lower-priced offer. They offer a very quick close and have perfect credentials, but usually have no flexibility. This offer is all or nothing, and you take it or leave it. Not a bad choice if you care about closing as quick as possible and not necessarily about flexibility and achieving maximum sales price.
The Safe Choice – This offer is usually the #1 choice for Sellers. It’s generally a blend of everything they’re looking for and can be totally different from deal to deal. It typically comes in at a good enough sales price, convenient close time, lots of flexibility, and great financial qualifications (cash or 20%+ down payment) Keep this deal in mind, and use it as your baseline for all other offers to beat!
The Emotional One – This is usually a Buyer’s longshot to make an offer. They love the house and want to get in the running, but they can’t offer more than a certain amount so they write you a Love Letter. These are usually lower priced offers, normal closing time range, flexible offers, but not highly qualified (5% down payment or less). These you need to be careful of, but if you care more about who the next owner of the house is than the actual money you receive at closing --- it’s definitely your best option! These are your highly sentiment-driven offers.
You could likely classify a few others, but these are the main types of offers I see in a multiple offer situation in Denver. I’ve been in a 43-way bidding war before. Might as well pick a name out of a hat at that point! In that case, they likely went with the first offer that fit all their criteria, so making an offer as FAST as possible is key in competitive bidding. If you are the buyer and plan to try in earnest and with good faith to purchase the house and it ends up not being the right fit, you can always terminate the contract with no consequences for a legitimate reason. It is more of a ‘FIRE, Aim, Ready’ mentality, but it works when competing for a property.
To sum things up, choosing the best offer as a Seller is about reading the offers in chronological order as they come in (in a perfect world of course, sometimes they read them out of order), and continuously comparing the next offer to the forerunner. Keep your end goal in mind as you read them, which for most is getting top dollar for their property. Don’t read the Love Letter if you can help it, unless you are having a tough time deciding between two offers --- and even then you’ll need to be very, VERY careful about the reason you’re choosing that offer after reading the Love Letter. Stick to your choice, and close on your house.
You’ll have 42 other ‘what-if’ scenarios in your head, but you’ll sleep better at night knowing you made the best choice because it was the offer that fulfilled all your end goals.