Not all offers are created equal

Not all offers are created equal

 

 

So you just completed the rehab on a flip. Before you put it on market to sale, you and your realtor check the numbers one more time to make sure you get the most out of the house. Your agent reveals there have been some better comparable sales since you started the project and suggests a higher list price than you had anticipated.

 

Excited, you put the house on market at this higher price on a Friday. By the next Monday morning, you have multiple full-price offers. Your agent goes back and asks the potential buyers to give you their highest and best offer.

 

Not all offers are created equal

 

When the smoke clears, you are wowed by the number of offers over the listing price. Now you have a decision to make. Which offer do you go with?

 

We’ve had some things like this happening lately. And as we considered the paperwork, it became apparent that not all the offers were created equal.

 

I’d like to walk you through some offers we received on a recent flip, explain the key differences and show you why we decided to go with the offer we chose.

 

The house we’ll be talking about is a beautiful brick ranch. It has a new kitchen with stainless steel appliances, a new roof and refinished hardwoods throughout.

 

Not only does it look great, but it is very affordable. To begin with, since it was an older home, we thought the house would sale for $90,000. But when our agent looked at the comparable sales, he was confident it would bring $100,000. So we listed it at that price.

 

Over that weekend, we got three full-price offers and went highest and best by Monday. Here is what we got.

 

Offer No.1 was for $105,000 with a conventional mortgage from a big bank. They could close in 30 days but asked for a 14-day due diligence period. They also wanted us to contribute $5,000 towards their closing costs.

 

Offer No.2 for a $104,000 FHA mortgage with a local lender that could do a 30-day closing. They asked for a 10-day due diligence period but only wanted $2,000 in closing costs.

 

Offer No.3 was for $100,000 with an FHA mortgage with a big bank. They wanted a 14-day due diligence period, 30-day closing, but were asking for zero in closing costs.

 

Not all offers are created equal

Based on that info, which offer would you choose?

 

Normally you’d want to go with the highest price, right? If it was all cash, you bet we would have. But there are some items to consider.

 

The first thing we need to think about is the financing. I personally like using a local lender with a mortgage broker when selling a house. They don’t get paid unless the house closes, which makes them motivated to get the job done. This is good for you as the seller because the last thing you want is to have a house under contract for 30 days, only to find out your buyer can’t get a mortgage.

 

You also want to consider the due diligence period, which is the time allotted for the buyer to research the property. During this period they buyer can back out for any reason. The shorter the due diligence period, the better.

 

Finally, you want to consider the closing cost the buyer is asking for. These costs are subtracted directly from the purchase price. So once again, the smaller the amount the better applies here.

 

On this house, we went with the $100,000 offer with no closing costs. Even though the others included higher purchase prices, we believed this one was a safer contract and would net us more money.

 

Not all offers are created equal

You see, we already listed this house for the most we could possibly conceive of it bringing. So if the house doesn’t appraise for the over list price, we will have to reduce the contract price to match it, and we’ll still be liable for the closing costs associated with each offer.

 

At the end of the day, full price and no closing costs was the best offer.

 

Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.

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