How to Evaluate Multiple Competing Offers Financially

How to Handle Multiple Competing Home Offers

You’ve worked hard to get your house ready for sale. The housing market is on the rebound. Home prices have gone up. For the first time in nearly 10 years, two or more offers at the same time is a common occurrence. Moving from a buyer’s market to one where few homes are listed and numerous buyers are interested often results in a bidding war. This certainly sounds exciting and profitable for you. But now that you’ve started a bidding war, how will you choose the best offer? You’ll need to review each offer carefully to determine its strengths and drawbacks and pick one to accept. Here’s a plan for evaluating home offers, based on financing:

1.       FHA Home Loans

Is one of the home offers you have received using an FHA loan? FHA loans have become quite popular over the past few years. An FHA home loan is a mortgage insured by the Federal Housing Administration as a part of the U.S. Department of Housing and Urban Development (HUD). These loans have low down payments and lower credit requirements. However, these loans are coveted by those simply desiring lower interest rate loans as well.

Is it to your benefit to have an FHA buyer for your property? The biggest challenge with FHA mortgage loans is the inspection and property approval requirements. Your property will be inspected several times. Since property condition requirements are more stringent than with traditional loans, you may have to make repairs, which will increase your costs and reduce your profit.

2.       Conventional Loans

You might also receive offers from buyers using conventional loans. Since conventional loans are offered without government restrictions, they offer more room for negotiation and flexibility. The mortgage lender will order an appraisal to determine the real value of the house. The lender does so to make sure the house is actually worth the money it will be lending the buyer.  Property conditions that will be inspected are items that could affect the soundness, livability, or structural integrity. Depending upon the loan program and guidelines, these repairs may need to be made prior to closing. If the appraisal reveals that the property is hazardous or risky in any regard, the bank will not approve the mortgage.

3.       Cash Buyers

There are several advantages to selling your house to a cash buyer. First, a cash buyer can purchase your house quickly. Working with a local cash buyer will reduce your time to sell down to as little as seven days. Second, cash buyers do not need appraisals. Finally, you avoid carrying costs you would incur if you had to wait 3-12 months to sell your house to a buyer using traditional financing.

4.       Owner Financing

 Owner-financing arrangements offer a number of advantages for both sellers and buyers. A seller who is offering financing to someone who might otherwise have had trouble qualifying may request a higher price. In addition, the seller could pay less in taxes since the seller would be reporting only the income received in a calendar year.

While owner financing can offer a number of benefits, there can be negatives as well. For the seller, some of the downsides of buyer financing are:

• For most sellers waiting to get paid is the biggest drawback. If you need the money to purchase your next house, this is not a good solution. You might get a down payment out of the deal, but you will have to wait over the term of the loan for the rest of the money.
• The seller has to assume the risk of the buyer defaulting on the loan
• Repair cost – if you do take back the property you might have to pay for repairs and maintenance.

What’s right for you ultimately depends on your individual circumstances and financial need. When choosing the right offer, also take into consideration contingencies (i.e. does the buyer have to sell a house before purchasing yours), terms, closing dates, price, down payment, and net proceeds. Remember, everything and anything is negotiable!