How to Analyze Offers
Here we will learn some fundamentals of negotiating real estate from a seller’s perspective. To do this, we will first need to know how to analyze offers that your agent has received. Nick Ahrens reviews all offers that come in with his sellers and compiles a detailed analysis of them so they are easily comparable in a side-by-side format. Below are only the basics of analyzing offers. A very in-depth analysis (beyond the scope of this document) is required to fully understand each offer and lay the foundation for negotiations.
Price - Price is one of many aspects that should be taken into consideration when reviewing offers. A high offer price may initially be attractive. There is a lot of depth behind the price. First, does the buyer actually qualify for the loan at the price submitted? Is it a risky loan, or is the buyer highly qualified for that price? If the loan is risky, or if they do not qualify for the loan, the offer likely should not be taken seriously.
To determine the “strength” of the offered price, we must analyze the proof of funds, structure of the loan, down payment, debt-to-income ratios and more. The foundation of a “strong offer” would be a high price in conjunction with a highly qualified, highly motivated buyer.
Terms – There are many negotiated terms in real estate transactions, all which will depend upon your situation and the situation of the buyer. These include items like initial deposit, selection of vendors, assigning costs for various inspections, and a lot more.
Terms of the sale will define who chooses a vendor and who pays for the following vendors:
Natural hazards disclosure
Repairing damage from TV mounts and brackets
Possible rodent remediation
Etc., etc., etc…
Terms also will define what extra things are included within the sale. Sometimes a buyer may want to keep window treatments, a mounted TV or custom fitted mirror, backyard furniture, etc.
Conditions – Conditions of the sale include timelines and contingencies.
Escrows in southern California commonly last 21-45 days. The length of an escrow likely will depend upon type of financing and the buyers’ situation.
Full contingency removal date is very important. When all contingencies for the sale are removed, the buyer is no longer entitled to their deposit. For any reason, as long as the seller stays within contract, if the buyer backs out of the deal, they will lose their initial deposit. A standard contract allows buyers 17 days to do any and all inspections and negotiate all repairs and allows for 21 days for final loan approval. These timelines can be shortened or lengthened for “contingency removal”.
Some buyers will submit an offer “contingent upon” a sale of the buyers’ home. This happens when the buyer needs proceeds from a sale in order to fund the purchase of your house. In these situations, we must analyze the accepted offer for the house they are selling, understand all details about their transaction and weigh the facts and risk accordingly.
When will the buyer take possession of the property? Often, sellers have 3 extra days to move out, after the sale is complete. This allows the seller a few days to move the final items out of their house with confidence that the sale has completed.
The Other Agent – Knowing the buyer-agent is also important. There is a lot of mediocrity in the quality level of real estate agents. Throughout many publications by Nick Ahrens, he comments on the necessity for only hiring high caliber agents. When a truly professional agent submits an offer, it helps build offer “strength”; it always looks good. On the other side of the coin, when a “crappy” or unethical agent submits an offer, this information will be presented to the you, the seller.
To Conclude – There is a lot more to consider than just price. Various combinations of price, terms, conditions and quality of buyer-agent are some factors that are important when analyzing offers. Understanding the details of every offer and knowing the buyer situation are tools to lay the foundation for negotiations.
Nick Ahrens analyzes every offer in-depth before presenting them to his clients. This allows for an easy side-by-side comparison of offers, their highlights and detriments, risks and benefits. As mentioned above, for the purposes of this document, only a fraction of information was discussed here.
*This was written by Nick Ahrens in 2017. It is merely an opinion, not intended to be a definitive system that works every time for everyone. Every homebuyer and family is different and all are in a different situations; because of this, talk to your local real estate expert to modify your search and customize your approach. Nick Ahrens, Remax Premier Realty, Kamran Realtors and their affiliates are not liable or responsible for any loss in attempted interpretation and use of this information.