Determining whether you should accept your next offer is one of the challenges of selling your Andover, MN Home. You may have questions like “How do I know if this is a competitive offer?” and “What should I consider before accepting an offer?” Here at the Guiding You Home Team with Keller Williams Classic Realty, we are here to help you navigate the home selling process. If you’ve been asking yourself how to evaluate your next offer, we’ve got you covered with these 7 tips.

Market Type

There are two main categories in the housing market. One is a buyer’s market, where there are typically more homes on the market than buyers. In this type of market, buyers have the upper hand when it comes to purchase price as they have a variety of homes to choose from. In a buyer’s market, sellers will be more likely to accept offers below purchase price and even agree to pay up to 3% of the closing costs. On the flip side, a seller’s market is where there are less homes available on the market for buyers to choose from. In this type of market, there are typically less homes for sale limiting a buyer’s options. Sellers have more control over pricing due to less inventory on the market for buyers. A seller’s market will result in more competition on each home for sale — driving up purchase prices and decreasing the opportunity for the buyers to negotiate the seller paying the buyers closing costs. As of April 2019, we are in a seller’s market with sellers paying a portion or all of the closing costs in around 40% of house sales. When evaluating a buyer’s offer, make sure what they are asking for aligns with the current state of the housing market.

Appraisal Value

The appraised value of a home is determined when an unbiased inspector examines the house for sale and gives an estimate of how much it is worth. The report is based off the market, homes in the neighborhood, square footage, home amenities, foundation structure, the condition of the home, and appearance. An appraisal is important because it determines how much the mortgage lender will be willing to approve for the buyer to borrow and the overall fair price for the seller. The home must be accurately appraised for the sale to go through and for a mortgage to be approved. Understanding the fair market value of your home will help you evaluate each offer and create realistic expectations on your sale price.

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Price and Closing Costs

A fair and realistic price is impacted by the changing housing market. The Guiding You Home Team can help you determine a reasonable price of the home. Closing costs can make a difference in the overall cost, depending on the type of market. Check with your real estate agent to determine what costs to include when setting your listing price. 

Financing Type and Private Mortgage Insurance (PMI)

The buyer’s choice of loan type is important when the offer are evaluated. Different loan types or financing types have different requirements for the appraisal. The four main types are Conventional, FHA, DVA, and cash. Cash is king. Cash offers have the least number of variables that impact the process from offer to closing. A conventional loan has fixed rates. Because they require larger down payments and higher credit scores, it appears to attract more financially secure buyers. 

FHA loans, are backed by the Federal Housing Administration, have lower down payments and are a great option for first-time buyers. FHA and DVA loans require that the home meets specific requirements regarding the condition of the property. 

Whenever a buyer puts less than twenty percent as a down payment, a third party is introduced to the lending process in the form of a private mortgage insurance (PMI) company. For Conventional financing, the buyer may be able to make a one-time payment to buy down the PMI upon closing on the loan. The downside to an FHA loan with PMI is that there will be private mortgage insurance costs tacked onto every mortgage payment for the duration of the loan, thus making each payment higher than payments on a conventional loan. 

There are also many requirements that have to be met to be approved of this loan, so be sure to talk with the Guiding You Home Team before applying for a loan. VA loans, extended by the US Department of Veterans Affairs, are great for veterans because there is usually no down payment required and the government covers the insurance payments. If you apply for this type of loan, talk with the Guiding You Home Team because there are very strict requirements to receiving this loan. 

Along with financing types, it is important to remember that if the appraisal comes in lower than the purchase price with government-funded loans, such as FHA and DVA, the value of the appraisal will hold for 6 months. The appraiser in government funded loans will also evaluate safety and improvement issues which must be repaired in order to meet the requirements for the loan and proceeding with the sale. Check with the Guiding You Home Team for comparing their financing type with the sale of your house.

Closing Date

The closing date and the flexibility may be the one variable that ultimately determines if a buyer’s offer is accepted, especially in a multiple offer situation. In a seller’s market, where inventory is low, a seller may be in a position where they need to find a home to move into. It is important to make sure that each party involved has enough time to proceed with the sale. Typically a buyer and seller can expect 30-60 days from final acceptance date to closing date to fully process the buyer’s loan. Talk with your real estate agent to find out what time works best for your situation.

Buyer Letters

Some buyers might try to persuade the seller by submitting a “love letter” to accompany their offer. The buyer will introduce themselves, offer pictures, and appeal to the seller. Your real estate agent is required to show every document regarding the sale of the house to the seller, but these letters shouldn’t influence the sale to maintain the integrity of the sale. It is important that the seller and/or the agent representing the seller never be put in a situation where they may leave themselves open to the perception of discriminating against a particular buyer. The seller should make a decision based the most financially stable candidate with the most desirable terms of sale. If you have any concerns with buyer letters, talk with the Guiding You Home Team to find the best buyer for your home.

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Contingencies

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A contingency is a requirement or condition that must be met before the sale of the property goes through. Most contingencies are based around whether or not the buyer’s existing home sells. Another common contingency is based on inspection. The buyer can request an inspection from a third party to check the house systems and structure. Contingent offers should be considered carefully before accepting. Check with the Guiding You Home Team for more information about contingencies. 

For any real estate situation, the Guiding You Home team at Keller Williams Classic Realty is ready to help. Give us a call or check out the rest of our website for more information.