by Smith Real Estate Services, Inc.
Do you find yourself evaluating the merits of one offer as compared with another? Here is a little quiz for you to consider.
Assumptions:
- You have 3 offers on the home
- The home has a value of $295,000 according to comparables
- You want to have the home sold and closed within 30 days
- This is a bank owned property
- These are the highest & best offers
Offer #1: Cash buyer, an investor who wants a deal and will close in 7 days to get it. He puts $10,000 down and offers $250,000 for the home. They provide bank statements showing $300,000 in a savings account.
Offer #2: First Time home-buyer using FHA financing. Their EMD is $1,000, they have a down payment of 3.5% and want seller to contribute 3% toward their closing costs. Their offer is $325,000 and they want 30 days to close escrow.
Offer #3: Home-buyer using conventional financing putting 20% down with a $2,500 EMD. Their lender is a national, respected lender and they provided current proof of funds with their offer. The COE is 30 days, their offer is $265,000 and they will live in the home.
Let's consider the reality of these offers given today's market.
Offer #1 Most banks cannot close an escrow in 7 days, 14 is far more common so a counter on the COE date is likely. Also, many investors put offers on homes they haven't even seen and when their offer is accepted, they reject the offer after seeing the home.
Offer #2 Most FHA financed transactions these days are taking longer than 30 days. Additionally, it is unlikely that this home will appraise based on the current market conditions. This means the buyer will submit for a reduction in price down to the appraised value.
Offer #3 This buyer has funds for a 20% downpayment so if there are repairs found, they can pay for them. It might mean they have less money to put down yet, having the funds for a 20% down payment gives them flexibility. They have more of a vested interest in the home because they will live in it. Their $10,000 EMD shows a strong desire for this home.
Given all of this, which offer would you take? With a 30 day time frame and an overinflated price, offer #2 is clearly NOT the best choice.
The difference between offer #1 and #3 is $15,000, 2 weeks and a motivated buyer. For $15,000 more on an asset that you have already lost money on, offer #3 is the more attractive offer. Even if you consider the time value of money, the cost differential on $15,000 for 2 weeks is too small to recognize.
Additionally, when a home owner buys a home to live in it, the commitment is generally greater than that of an investor.
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