The Sales Price
TLDR: The Sales Price is just one of many factors to consider when determining the strength of an offer. The Sales Price may be negotiated further during the course of the transaction depending on contingencies.
One of Many Factors: The Sales Price
Widely considered the paramount term in the negotiation of property, and while it is certainly significant, there are many other important considerations besides the Sales Price when weighing the strength of an offer. There is also the request for closing cost assistance, the closing date, and the sizable impact of contingencies, which can make or break a transaction. Those terms and conditions are not negligible!
To put it in perspective, let’s say that you listed your property for sale and you quickly received three offers. If the buyer with the highest offer includes a smorgasbord of contingencies, offers a low earnest money deposit, and is asking to close on an extended timeline, it’s worth reflecting on whether that is, in fact, the best option for your situation. Going with that buyer may net you the highest amount, but it also puts the transaction at greater risk of not closing―which would put you back at square one.
Net to Seller: A Better Way to Compare Offers
Instead of having you do back-of-the-envelope math to compare the strength of various offers, we did the math for you. This is the formula:
*Our contract states that Home Warranties won’t exceed $600, so that is the value we used in our calculations.
Note that this only shows the total cash value of the buyer’s offer (barring any intangible value reduction from contingencies, of course). It doesn’t factor in transfer costs, transfer taxes, mortgage payoffs, or any other inexorable fees that will be paid irrespective of which offer you select.
Don’t Fall in Love with the Sales Price
While it’s tempting to imagine yourself with an enormous cardboard check in the amount listed on the contract, the property’s sale price is by no means carved in stone and may not remain the final figure at closing. Over the course of the transaction, the buyer may discover new information that will cause them to reevaluate their offer price. If they took precautions in their offer, they may employ a variety of tactics that would reduce the original contract price.
These are three common safety nets used by buyers (and lenders) to validate the sales price and avoid overpaying:
Financing Contingency: Lenders almost universally require an independent appraisal of their future collateral, and they will not lend more than the appraised value. If the buyer is unable to obtain a loan because the property did not appraise at the negotiated price, they will likely ask for a reduction in the price in order to move forward with the sale.
Appraisal Contingency: If the buyer isn’t using a lender but includes an appraisal contingency nonetheless, the transaction depends on the property appraising for at least the offer price. If the independent market assessment comes back at below the sales price, the buyer will likely ask you to lower the price to match the appraisal.
Inspection Contingency: Disrepair revelations in an inspection report may prompt the buyer to request repairs or financial concessions.
What to do if you aren’t getting any bites...
In our Decide on an Asking Price section, we discuss how to look at the market and price your house at a figure that will sell. If your property has been sitting on the market for a while, it might be time to lower the asking price. How do we define “for a while”? Generally, if your property hasn’t received any offers within two to three weeks of going live, it’s likely worth reassessing your price point.
If your property has been sitting for a long time with no offers (or only lowball offers from investors), here’s the ugly truth: It’s priced too high. If you’re committed to selling, you’ll likely need to lower your asking price. Remember: At some price between zero and what your property is listed at, your property will sell.
Tip: Avoid the Dregs of Property Rankings
Newly posted properties appear at the top of the page, so you’ll want to make sure you’re realistic in pricing your property right from the start. The longer your property stays on the market, the lower it’s ranked.
Comparing Offers Apples to Apples
If you’ve priced your house correctly, it's not uncommon to receive multiple offers. While exciting, comparing verbose, unique contracts traditionally poses a challenge as sellers scour each document for the pertinent sections. At Aloha My Home, we’ve provided a comparison option so you can view multiple offers directly next to one another without digging through the fine print or doing back-of-the-envelope math for different contracts.