The housing market has been a wee bit crazy over the last couple of years, and the roller coaster seems far from over. Despite rising interest rates, the housing market in many areas is still red hot.

If you’re a seller, that could mean an embarrassment of riches: A simple open house could result in multiple offers on your property at once. While it’s tempting to just pick the highest bidder and pop a bottle of champagne in celebration, you should stop and consider each offer on its own merits and make some comparisons before you accept one.

Money Talks – But It Doesn’t Always Say the Right Things

If you end up with multiple offers on your home, the odds are very high that at least a few of those bids are going to be substantially over your asking price. Some of your bidders may also have built-in escalation clauses that automatically bump up their bid to a certain amount over any other, higher bidder – up to a predetermined cap.

However, not all bidders are built alike – and you need to look at what kind of financing each buyer is putting on the table. Here are a few different things you should evaluate:

1. Are there any cash offers? 

Cash really is king, especially when it comes to real estate deals. A cash offer means that you don’t have to worry about problems with the buyer’s finances suddenly cropping up.

In some cases, it may be more prudent to take a cash offer that’s slightly lower than a bid that’s subject to financing. This is particularly true if there’s any concern about an appraisal gap – where the value of the home and what the bank is willing to finance don’t match up.

2. What type of financing does each bidder have?

An offer is only as good as the available financing – and house sales fall through because of problems with a buyer’s finances all the time. You definitely want to sort buyers who have a preapproval letter from a lender from those that are merely pre-qualified.

What’s the difference? Pre-qualification is, at best, a lender’s best guess about how much house the buyer can afford, but it’s based mostly on the buyer’s self-reported financials. Pre-approval is a much more intensive process and is just short of an actual commitment from the lender.

3. Are there any appraisal gap clauses?

Bidders in particularly hot markets will sometimes make an offer that they suspect (or know) will end up with an appraisal gap. If so, an appraisal gap guarantee clause can help them still secure their dream home.

In essence, this is a clause that guarantees that the buyer will cover any gap between the dollar value of their bid and the home’s appraisal for financing.

4. How much earnest money is the bidder willing to give?

Earnest money is sometimes called “good faith” money. The money stands as a promise that the buyer really will go through with the deal and serves as a way to “hold” the property while all contingencies are met and the sale is completed. Once the sale is completed, the money is applied to the purchase price of the house. If the buyer backs out for any reason not permitted in the contract, however, you – as the seller – have a right to keep their earnest money for your inconvenience.

Typically, 1% to 2% of a home’s purchase price isn’t unusual for an earned money deposit, but 5% to 10% should definitely attract your attention. A buyer is unlikely to walk away from that kind of cash.

5. What sort of contingencies are the bidders willing to waive?

Most real estate sales live or die on contingencies. Aside from those associated with financing, one of the most important is the home inspection. Most buyers don’t want to risk a major investment like a home without a full home inspection – and many lenders require them.

If you have a buyer who is willing to take your home “as-is” and sans inspection, that could outweigh the fact that they may be offering a little less in their bid.

Short of that, you may want to consider what else the buyers are willing to waive. In a “buyer’s market” (when the buyer can afford to be picky), it’s not unusual for buyers to ask for minor repairs to the property before they finalize the deal. If you have a buyer who is willing to forgo all minor repairs and only wants the home inspection to rule out structural problems, that may make their offer more attractive.

6. Which offer contains the most favorable terms and conditions?

There’s also the matter of what “terms and conditions” the seller wants (or is willing to omit from the deal). Some of these may be related to financial concerns, while others are more about convenience.

When you have multiple offers, review them carefully for things like:

  • Who will pay closing costs? Closing costs are the processing fees buyers pay when they close on a loan and can include fees for the title insurance, appraisal, attorney, fees and taxes. They usually amount to somewhere between 3% and 5% of the loan amount, so that can be significant. A buyer who is willing to shoulder those expenses alone is probably better than one that wants the seller to contribute.
  • What closing date is requested? Whether you want a short or long closing date is really up to your particular situation. If your buyer wants a super-fast closing date and you haven’t even started packing, you may need to negotiate some more time. If your buyer can’t commit to a window of 30-60 days to finalize their loan, that could also be problematic if you’re ready to move.
  • What about post-closing possession? Your buyers may be eager to move in, but what if you haven’t found your next residence just yet? You may need the money from the sale to put down on your next place. If a potential buyer is willing to rent back to you for a month or two while you relocate, that could eliminate a lot of stress in your world.
  • What about fixtures and appliances? If you have a chandelier that’s a family heirloom or you just bought all-new stainless steel appliances that you want to take with you, will the buyer agree to those terms? Is there something you’re willing to give up?

Some of these may take greater priority over price when it comes down to meeting your needs the best, so pour over them carefully and don’t be afraid to ask for concessions.

What Are Your Options When You Have Multiple Bids?

When you have a stack of offers on your home, you have several options:

  • You can accept one of the offers: Maybe you really liked the idea of a young family taking over the property – or maybe there’s an all-cash offer in the pile that makes you happy. If you want to accept an offer, just make sure that you’re happy with its terms before you seal the deal.
  • You can ask all of the bidders for their best offer: Bidding wars happen, and buyers aren’t unaware of the possibility. This move is designed to make everybody put their cards on the table so you can see exactly what each buyer is willing to give (or give up) in order to secure the deal.
  • You can exclude some, and negotiate with others: Maybe the offers are a bit of a “mixed bag.” Some, you clearly don’t want. Others could be what you need if the would-be buyers are willing to compromise or negotiate a little. You can make counter offers on the ones you like and see what happens.
  • You can reject them all: That may be your best option if all the offers seem to be “lowball” dollar amounts and the would-be buyers have questionable financing. Unless you’re desperate to sell right away, patience can definitely be a virtue for sellers.

Whatever you decide to do, make sure that you listen closely to your real estate professional – and don’t be afraid to lean on them for guidance.

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