Picture this: you listed your home, had an open house or a few showings, and now have multiple offers to consider. Your first thought as a seller will be to look at the intended purchase price, but there are plenty of other factors that can affect how much you’re really getting. Our list of factors corresponds with the Pennsylvania Agreement of Sale for residential properties and can vary depending on state and property type.
We’ll briefly mention the significance of the response & acceptance date. Knowing when each offer expires ensures you don’t lose the buyer with the best offer. In a competitive market like this one, response dates can be as short as less than 24 hours. Even if you sign all the paperwork, if it is past the acceptance date, the contract is not valid. The execution date (the date the contract is in effect) needs to fall before or on the acceptance deadline.
On the same page of the price and acceptance date is any seller assist, the earnest money deposit amount, and settlement date. Any amount of a seller assist will affect the amount netted from the offer. It is the amount a seller credits back to the buyer at settlement and will be subtracted from the net amount. We explained the significance of the earnest money deposit amount in our blog post, ‘Terms You Should Know: down payment, deposit, and escrow ‘ and will repeat what it means here. The earnest money deposit shows that the buyer is purchasing this property in earnest and serious about the home. This money is submitted by the buyer and held in a third party escrow account and credited back to the buyer at settlement. The larger the deposit is, the higher the risk for the buyer. The only way a seller can receive this deposit is if the buyer backs out of the contract without using a contract contingency (i.e. inspection contingency, appraisal contingency, mortgage contingencies, etc.).
The settlement date can also affect your finances and while a buyer may want to move into the home as quickly as possible, it can negatively affect a seller, so make sure it coincides with your time frame of vacating the home and finding another residence. If you need to move out sooner than expected, you may need to pay for temporary housing and/or storage space. If the settlement date is later than you’d prefer, it could result in you paying for two mortgages for a period of time.
The following page of the PA standard residential contract includes the inclusions, exclusions, and the buyer’s financing. The inclusions and exclusions are what a buyer would like you to leave or take out of the property before settlement. If it’s a larger item and they want you to take it, it could be an additional expense to remove the item. If it’s something you want to take with you out of the house, you should not accept the offer until that item is removed from the contract.
Financing represents how the buyer intends to pay for the property. When a buyer is obtaining a loan, the amount they are receiving is just as important as who they receive it from. You’ll want a buyer who has a reputable lender so there are no hiccups along the way, and if there are, you can be confident the lender knows how to resolve it. If you receive multiple offers with the same purchase and loan amount, you can consider the down payment amount as a deciding factor. For example, a buyer putting down 20% on their loan has a stronger offer than someone putting down 5%. Don’t forget to check the interest rate in this section as well to make sure they are being realistic. There are also different types of loans and you will want to be aware of which one a buyer has (i.e. conventional, FHA, VA). Some of these loans come with additional criteria and can make the sale of your home a bit more complicated and may take longer to close. If a buyer is purchasing your home with cash, make sure you have proof of funds to show they can actually make it to the closing table. Obtaining the Buyer Financial Information (BFI) form with the offer clarifies the buyer’s expenses and assets and how affordable the property is for them. You should require a BFI for every offer, whether it is being financed by a loan or the buyer is paying cash.
Next are the inspections. You may have heard of buyers waiving inspection contingencies in this market, but if the inspections aren’t waived, review the ones that are elected. Typically in Philadelphia, a buyer elects to conduct a general home inspection, wood destroying insects inspection, and radon inspection, however, sometimes buyers will elect all inspections. Keep in mind that they may have elected to conduct all of these inspections while still trying to understand what each of them are or if they are necessary. Just because a buyer elects a specific inspection does not mean they will actually conduct it. An offer with all inspections waived is a stronger offer because it takes away the opportunity for the buyer to walk away with their deposit based on inspection issues or disagreements– this is also known as removing the inspection contingency.
There are other contingencies to keep in mind and they will be specified in the special clauses and supporting addendum. There may be home sale contingencies (buyer cannot purchase home without selling their current residence), appraisal contingencies (buyer can walk away if home doesn’t appraise for the offer amount), and so on. The more contingencies a buyer has, the more opportunities the buyer can walk away with their deposit. Along with contingencies in the special clauses, there may be other information to consider. It’s possible a buyer agrees to cover $5,000 of inspection issues, leaving a seller with more confidence they won’t have to pay for every little thing that comes up in the inspection report. This is only one of many examples of special clauses that may affect the strength of the offer and the net amount a seller will get at closing.
Remember: offer price is not everything. All of these items we discussed can reduce the actual amount that a seller is netting, including the fees associated with closing– fees associated with closing can be disclosed before you list with a realtor. Listing and reviewing offers with a realtor ensures you will be put in the best situation.
Stephanie Slapin
February 24, 2022