Home-Sellers: 3 Things to Consider About Offers
Home sellers who receive an abundance of offers might be tempted to grab the highest price and call it a deal. But that might not be the smartest way to choose the best offer of the bunch. A better approach is to consider a variety of factors, including the buyer’s ability to pay cash or obtain a home loan.
An all-cash offer always merits consideration because a failure to obtain financing is the most prominent reason why transactions fail to close. In some cases, the buyer is unable to qualify for a mortgage. In others, the appraiser’s opinion of the property’s value falls short of the purchase price, causing the lender to quash the financing due to a so-called low appraisal. With a cash offer, no lender is involved, so both risks are eliminated. A cash offer isn’t a guarantee, however. And there’s another downside for the seller: Most cash offers come from investors looking to “fix and flip” houses they buy at a discount. These investors don’t plan to occupy these houses for the long term, if at all. Given cash buyers’ expectations that they will get discounts, sellers must weigh the risks of cash offers. You can take the all-cash offer, and it’s a safe bet that you will get your cash at the end of the day. But you’re only going to get X dollars. If you do your homework and pick a good, comfortable, reliable buyer who is looking for financing, you might make X-plus dollars. But the question is: How safe is that bet?
Pre- Qualification Letters
The answer is where pre-qualification letters, or “prequals,” come into the analysis. Prequals are written by lenders to inform sellers that would-be buyers are qualified to obtain financing. But not all prequals are equal, so sellers — or their agents — need to do some legwork to assess which prequals are credible. Sellers should take a look at the qualifications of the individual who wrote that letter. While loan officers shouldn’t disclose the buyer’s personal information to the seller’s agent, that agent can call the loan officer and engage in a conversation about the buyer’s strengths. One question might be whether the buyer could be characterized as “qualified,” “well-qualified” or “barely qualified.” The seeds of this investigation can be planted even before the offers are received. The seller’s agent can insist on a thorough preapproval and an understanding of the buyer’s true financial capability.
Some sellers automatically give the cold shoulder to buyers who want to get FHA or VA loans. FHA loans are insured by the Federal Housing Administration, and VA loans are guaranteed by the Department of Veterans Affairs. Both government agencies require sellers to pay to fix certain defects. Sellers might say they don’t want FHA, but there’s no reason for that. It’s a case of not knowing what the facts are. One fact is that most states require sellers to disclose and, in some cases, repair known property hazards regardless of the buyer’s financing. Another twist, which is that VA loans require the seller to pay in full certain closing costs that might otherwise be shared with the buyer. Those costs can add up, again prompting sellers to kick VA loan offers to the curb.