When you list your home to sell, it can be exciting when the purchase offers begin to arrive from potential buyers. How do you evaluate the different offers that you get, and then, choose one to accept? While it might seem simple enough to go with the highest bid, there are definitely other important criteria to take into consideration. Whether your home listing generates multiple purchase offers or just a lone, single offer, it's important to know what to look for.

Remember that net proceeds are more important than price

When you evaluate purchase offers, it's important to remember that the price that you're offered isn't necessarily the sum that you get to walk away with. You need to think about the expenses paid from the sales price of your home, and the sum that you're left with in hand.

Seller concessions: (Rare in 2022!) In real estate transactions, a seller concession is an amount that the seller allows the buyer to keep to help cover the down payment and the closing costs. The actual sum that changes hands is negotiated upon. If a buyer asks for a seller concession, this will come out of the purchase price that you actually receive.  For example, if one buyer offers you $705,000 for your home, but asks for a 6 percent seller concession, you are only left with $662,700 in the end. If another buyer offers only $695,000 but asks for no seller concession, you're left with all the money in hand. A big difference!

Bank repair expenses: When a homebuyer approaches a bank for a loan to cover the purchase of a home, the bank performs a home appraisal to determine whether the property is actually worth the price demanded. Often, banks require that certain repairs be carried out before they agree to financing the deal. It is the seller who spends on these repairs. It's something you need to take into account when a buyer offers to buy your home.  Often this is a function of the type of loan your buyer is using.

You'll need to understand the buyer's offer

When a buyer makes an offer on your home, it works out to your advantage to learn a few things.

Is the buyer pre-qualified or pre-approved: Before a buyer puts in an offer with a homeseller, they usually approach a bank for a mortgage. The bank evaluates their application, and either grants them pre-qualification or pre-approval. When a buyer comes in with only pre-qualification, they may possibly face hurdles actually getting a mortgage. It's a good idea to prefer buyers who are pre-approved, or even pre-underwritten. They tend to have fewer problems securing a mortgage than those who only have pre-qualifications.

What kind of mortgage does the buyer have: Banks offer buyers mortgages with different kinds of options. There are mortgage options that allow buyers to come in with zero down payment, and ones that require a down payment; buyers may come in with an FHA home loan or a VA home loan. It's important to learn about these alternatives and arrive at a decision that works for you. FHA and VA loans have rules and regulations that conventional loans do not!

Is the buyer's timing convenient?

If you plan to buy a new home immediately after selling your current home, you'll need to make sure that you consider the target closing date for the purchase offer. It will need to align with the closing date for the new home that you hope to buy. Many buyers will allow you to remain in your home for up to 60 days AFTER closing, giving you the time you need to find a new home, close on it, and get moved.

Are there contingencies included in the purchase offer?

Purchase offers often come in with contingencies - conditions upon which the offers to buy your home are based.

Inspections: While many buyers today will do "Information Only" inspections, some will ask for a range of repairs. Most offers allow the buyer to request some repairs (In 2022, its mostly major health and safety type repairs). The buyer ALWAYS has the right to terminate if they find something they can't live with during the inspection.  A buyer's offer that isn't contingent upon such inspections can be far more desirable! Consider having your home inspected before listing, and handling any major repairs prior to going on the market.

Appraisals: A buyer's lender will require them to get an appraisal to evaluate the price they are paying. Appraisers look at historical data to determine a home's likely value. The market, on the other hand, looks forward.  In today's skyrocketing marke,t prices are going up fast.  In a rapidly increasing price environment like we have today, the appraised value may be lower than the price the buyer is willing to pay.  An appraisal contingency allows the buyer to cancel if the value is less than the offer price.  Buyers may offer an "Appraisal Gap" which requires them to bring additional cash to closing to cover the difference.

A home sale contingency: Sometimes, buyers have a "Conditional Sale" contingency.  This means that they have a home to sell, and can only buy your home once their sale goes through and they have money in hand. Even when such a buyer does agree to buy your home, there's no guarantee that they actually will, because their own home may not sell in time. Such buyers tend to be less desirable than buyers who don't bring in sale contingency clauses.

Conclusion

Its very important to evaluate each offer for the net return to you, the repairs you may have to make and the likelihood you'll actually get to closing. If a potential buyer's offer is complicated by requirements to do with new home purchases, contingencies, or late closing dates, their offer may no longer be as attractive as they originally appeared. When you familiarize yourself with the different complications that a purchase offer may come with and the different incentives buyers may offer  to balance them, you'll likely find the going much easier.