Offer Terms

What makes a buyer’s offer “strong” when buying a home?

There are two key parts to an home purchase agreement:

  1. Price
  2. Terms (Conditions/Contingencies)

Cash, financing, contingencies and terms of a home sale can get complicated. Here are some basics.

Most home sellers instantly gravitate to price and this is natural however the terms and conditions of the offer may be just and important.

What home purchase agreement terms should you pay special attention to?

Is the buyer getting financing or paying cash?
The best financing is no financing. Cash is so attractive because that some sellers will accept a slightly lower sale price from a buyer who doesn’t need a loan. Why?

  • No appraisal to kill the deal
  • Can close more quickly than a loan
  • Fewer risk to the seller from financing contingencies that allow a buyer to back out.

If the buyer is getting financing, the type of financing matters as well.

A conventional mortgage is a home loan that is not insured or guaranteed by a government agency. From a seller’s perspective, conventional financing is generally worse than cash and better than an FHA loan or VA loan but learn about the buyer and the lender before just assuming the conventional buyer is better.
An advantage of conventional financing is that you are less likely to see repair requirements based on appraisal because it’s not required to comply with FHA LOAN APPRAISAL GUIDELINES (What the Appraiser Looks for).

VA loans are guaranteed by the U.S. Department of Veterans Affairs. Some sellers like the idea of helping military service personnel, veterans and other VA-eligible buyers however like FHA loans, VA loans can have repair requirements. VA loans can take longer to closer and they also limit how much buyers can contribute to their closing costs resulting in the seller having to make more financial contributions to get the loan closed.

FHA loans, insured by the Federal Housing Administration, generally appeal to buyers who have impaired credit or not much cash. FHA buyers can be costly for sellers. Repairs might be required to satisfy an appraisal contingency. Sellers might also be asked to pay a larger share of the closing costs or contribute funds toward home compliance items like sewer systems. The deal might take longer to close. Or all of the above.

Contingencies and terms can cause grief.
After you have looked at how the buyer is paying for the property, you will want to look at other terms, like when they want to close the sale, if they want inspections done or other things that might give them a way to back out and cause you to be back to square one, looking for a new buyer with a “scar” on your home sale history that could potentially reduce your ultimate sale price.

So how can you sort this all out? Your agent will help you decide what terms are most important to you. What things may be worth negotiating and what is not.

Read about:

Purchase Appraisals

Getting Maximum Appraisal Value for Your House