1 – Don't accept the highest price offer without asking the right questions. For example:
- How strong is the buyer's financing approval? Even the buyer claims to be "pre-approved", the deal may fall through because of financing conditions unrelated to the property itself.
- Is the buyer willing to waive the financing contingency? The buyer may be able to make the offer contingent on an appraisal, title, and other property-specific items instead of the much broader financing contingency found in most purchase agreements. This way, you know the lender has already fully approved the buyer's credit report, income documentation and asset documentation.
- What will the buyer do if the appraisal doesn't come in at value? This brings us to the second point:
2 – Be prepared for a dissappointing appraised value. Appraisers are required by law to use the most recent comparable sales when determing the appraised value of your home. In a hot market, the most recent comparable sale may be for a price that's less than the price at which you're selling your home. This means that the buyer needs to be prepared to either: (1) come up with a larger down payment to make up the difference; or (2) choose a different loan program that allows a high loan-to-value (LTV) ratio. These can include loan programs with mortgage insurance.
3 – Don't be turned off by a buyer who has a small down payment. While cash buyers are typically able to move quickly, buyers who use financing may be able to offer you a higher price. You can have your cake (higher price) and eat it too (close the deal in a reasonable timeframe) as long as you make sure that you're dealing with a strong buyer. If you're not confident with the buyer's lender, or if you don't trust their "pre-approval", you may want to ask them to apply with a lender you trust. Although you can't require the buyer to use your preferred lender, you can certainly ask them to do so.