Accepting The Right Offer
There are many stages to a successful real estate flip. Most investors feel that once they complete the work on the property their job is over. In many respects the job is only just beginning. You can do everything right from start to finish but you still need to get your property sold. Selling for maximum value takes a combination of listing at the right price and accepting the best offer. There are times when the best offer may not always be the one with the highest price. Taking a higher priced offer that doesn’t close puts you right back at square one. It is not enough to accept the first offer than comes your way you need to accept the right one. Here are five things to look for on every offer.
- Financing. One of the first things you should look at is how the offer will be financed. It is no secret that there have been numerous changes in the loan approval process. Many of these changes are aimed at protecting the consumer and ensuring they get the best deal possible. One of the byproducts it that it has added several days to the closing process. There is a sequence that many loan items need to follow before the next one can be started. The average loan time is currently right around 45 days. This alone may not be a problem if you knew you were going to close. There are more 11th hour issues in the process than ever before. With this comes increased risk even if the pre-qualification letter indicates the borrower is solid. Accepting an offer from a financed borrower is never as certain as a cash offer. You have to determine just how much of a premium you place on accepting a lower priced offer rather than taking the chance that financing comes through.
- Timeframe. When trying to sell a rehab when you close is almost as important as how much you close for. It is important to look at the projected closing date on the contract. With cash offers you should be able to close in seven to ten days. A cash offer that comes in with a longer timeframe should be greeted with skepticism. There may be something else in the works that is causing the buyer to want to push the closing back. With a lender financed offer you want the closing to be anywhere from 30-45 days max. Even squeaky clean offers usually need at least one extension. At this point you may be as far as two months away from the time the initial offer was accepted. A lot can change in any market in two months. If for some reason the deal ends up not closing it may cost you thousands of dollars. Typically the quicker you close your flip the faster you can move on to the next property. Keep that in mind when reviewing your offer.
- Contingencies. Almost every offer has some form of contingencies. The two most common are for the inspection and for financing. The first thing you want to look at is how far out these contingencies are. With the inspection you want this to be a maximum of five days after the offer is accepted. You want to know where your buyer stands as soon as possible. With the financing you need the loan approval date quickly as well. The longer the financing contingency is out the later you will close. There are other contingencies on the contract as well. You want to look that they buyer doesn’t want certain items repaired or replaced. These can not only cost you money but extend time on the deal. Additionally if the buyer is haggling on their initial offer you can bet they will continue this throughout the process.
- Deposit & Proof Of Funds. There are a few things that must accompany any offer. Depending on the type of financing you want to look for either a proof of funds letter or an increased down payment amount. A cash offer that comes in without a proof of funds isn’t really worth the paper it is printed on. You need to verify that they have the funds in an existing account. You letter or statement needs to be current and needs to cover the entire amount needed at closing. With a financed offer the greater the down payment typically the stronger the buyer is. Just like with a cash offer you need to see proof of these funds. The buyer should deposit the down payment in addition to other funds needed in their escrow account. Failing to include this in the initial offer should be a red flag that they may be having trouble producing it.
- Signed Forms & Disclosures. A buyer and real estate agent that really wants a property will send everything over in one shot. This includes all forms and disclosures signed and dated. If there is an omission they need these items returned as quickly as possible. In this day and age of increased technology it is easier than ever to get something signed. By making you wait even a day or two this could be a sign that they may not be the right buyer.
Price is always important with every offer. What you need to do as the seller is weigh price and ease of transaction. A deal that doesn’t close will cost you thousands of dollars to your bottom line.