There are times in the real estate industry when having a problem is a good thing. For instance; having multiple offers on a property can be considered a “good problem.” While this is a positive scenario, not choosing the right deal can quickly turn into a negative situation. If you don’t select the deal that will actually close, you can end up wasting time and losing any potential offers that were on the table. You can never be fully certain that you are going with the right buyer, but there are some clues that can help you evaluate multiple offers.
The first clue you should look at is the strength of the pre-qualification letter. Most pre-qualification issues are generic in nature, but that shouldn’t stop you from doing your homework. Place a call to the lender or mortgage broker and see how far along in the process they are. They cannot and shouldn’t disclose personal information, but they are able to tell you if they reviewed income and asset documentation. At the very least, it can give you a general idea on the type of loan they are applying for.
The next step is to look at the contract and see how much the buyer is putting down. Generally, the higher the down payment amount, the stronger the borrower. There are exceptions to every rule, but if your borrower is putting down only 3.5 or 5 percent, this could be a signal of trouble ahead. There could be issues with private mortgage insurance amounts or verifying the source of the down payment. A higher down payment allows for more of a cushion for underwriting and will generally lead to a quicker and easier closing.
Along with down payment money, look at the earnest money deposit. If they are only putting down one percent of the loan, they may not be as vested in the property as you are. This could give them an out to back away from the deal if issues arise with the inspection or if financing hits a snag. Technically, if the buyer walks away without proper cause, you could keep this down payment amount and move on to another buyer. Buyers with $10,000 down on the contract are less likely to walk than a buyer with only $1,000.
The third piece of the puzzle you should look at is length of time to close. A lot can happen with a buyer if you give them too much time. If they are willing to close quickly, this has to be viewed much more favorably then if they have to wait 45-60 days for a mortgage approval. You may not receive many cash offers on a finished property, but any that come in have to be looked at more closely. Even if this offer is thousands less, there is something to be said for closing quickly and knowing you will actually be able to close and move on to your next deal.
Look at the whole offer, including any contingencies and credits before you make your decision. Getting top dollar is always the goal, but sometimes taking a little less can be the best thing you can do. The alternative to taking the right deal is waiting months to find out they buyer won’t close then having to put the house back on the market. By the time everything is said and done, this could put you well below any offers you were originally contemplating. Price is nice, but not always the best option.