Offers are either reviewed on a set offer review date or as they are received.
If they are reviewed as they are received, the listing agent must present the offer to the seller “in a timely manner” as per state law and usually after the listing has spoken to the lender or attempted to verify proof of funds, if a cash offer. The seller may accept, reject, not respond (reject), or counter. If the seller counters, the buyer has 2 business days to respond unless noted in the counteroffer. There may be multiple offers even in listings with no offer review date - Usually low chances of competing offers right away, followed by growing chances of competing offers for a several days, then reducing chances of a competing offer.
If there is an offer review date set, then typically buyers will submit an offer on that specified morning or afternoon. The time offers are due is usually hours before the listing agent actually presents the offers. This is because the listing agent would want to spend a couple hours talking to all the lenders, reviewing all the offers for errors, organizing all the files, filling out a spreadsheet to illustrate the differences in each offer, and maybe even printing all the offers out before meeting with the seller. Here’s an example of a spreadsheet I use for my listings:
It typically takes ~30 minutes to review an offer and only 5-10 minutes for each additional offer. However it can take minutes or hours for a seller to decide which offer to accept, respond, or to reject. Even on an established offer review date, the seller does not need to accept an offer and there is slim chances that an offer will get a “second chance” at writing a stronger offer after submission.
If an offer were worth 100 points, these are the traits and how many points they are worth:
Lender
(10pts)
Every experienced listing agent will advise their seller on the reputation the lending institution has. The listing agent may share their opinion of how accessible the lending institution’s loan officers are, what their perceived risk of a failed transaction is, and their general opinion about the institution. In general, local institutions with loan officers who are reachable are the best. I’ve won deals (including my own current primary residence) 100k under a cash offer because of who we used as a lender. I’m listing this here first because a buyer and seller must be aware that even though a buyer may want to (or expect) to change lenders during a transaction, it must be approved by all parties involved and will likely change closing costs and closing dates. It’s extremely important to both a buyer and a seller that the buyer is well-advised by a competent lender.
To my buyers, this is one of the first steps to an easy home search and offer drafting/winning; To my sellers, I’ll outline the risks as that can affect the final sales price if the deal goes sour and we have to relist. Click here for more information on lenders.
Sales Price
(25pts)
The largest single factor, however not the win-all. On both buying and selling sides, I’ve seen hundreds of times the highest offer NOT being accepted because of the other terms. The sales price makes up only one out of 55 lines on only one page out of the 20-60 pages that make up an offer. It’s a powerful line that makes up about 25% of a strong offer.
Things that may affect the seller’s sales price (net) are any credits the buyer is asking the seller to pay for…or the other way around where the buyer may be offering to pay for the seller’s closing costs! There are many, many other terms that I’ll go over with you individually that will not make it on this webpage! Clients, click here to see an example offer.
Funding (20pts)
How you guarantee to pay the sales price is just as important as the sales price! Cash is not always king, though it’s pretty enticing to most sellers. Here is the order of the strongest (most reliable) to weakest (most risky) of methods of financing a home:
Underwritten pre-approvals (truly underwritten that can close in 10-15 days)
Cash (liquid)
Contingent cash (gift funds as well as any funds that need liquidating such as stocks, crypto, and foreign currency)
The common pre-approval
Prequalification
Funds that are contingent on the sale of the buyer’s home.
In our market, we don’t see many offers with only pre-qualifications (sometimes incorrectly termed pre-approval as there are no regulations or standardization on terminology). However, if someone only has a pre-qual, I wouldn’t say it’s not worth anything, but it’s pretty close. If the funding of an offer is contingent on the selling of the buyer’s current home, then that is on par with pre-quals.
If the offer escalates over the initial asking price, the promise to pay in cash the difference between the appraised value and the sales price becomes a large consideration. In 2021, we often saw $1MM homes sell for 1.5 but appraise only at $1.1MM, making the buyer pay an additional $400k in cash on top of the down and closing costs to keep the transaction going - I’m glad those days are over for many reasons! Until I make a page about why UW (underwritten) pre-approvals are better than cash, ask me next time we chat!
Contingencies
(20pts)
Contingencies protect the buyer and allow for a legal way out of the purchase; Contingencies keep sellers on pins and needles even if they have a flawless home they are offering. The riskiest of the contingencies to a seller is what I call “subjective contingencies” which include but are not limited to the home inspection, HOA review, title review, neighborhood review, and the worst being feasibility contingencies. These contingencies allow the buyer to back out without any explanation or actions - They can back out during the inspection contingency without even having an inspection performed. “Objective contingencies” on the other hand still allow a buyer to back out and get their earnest money back but must show evidence that they are dissolving the transaction because of specific reasons. The financing contingency is an example where if the buyer can’t secure financing for pretty much any reason, then the buyer doesn’t have to purchase the home and can get their earnest money back - Another reason why the listing agent (and seller) cares if the buyer’s lender is reliable, reputable, and easily accessible.
Earnest
(10pts)
The earnest money (EM) is like a deposit where if a buyer walks away without legal reasons, then they forfeit it to the seller. There’s no similar protection for the buyer, but that’s because it’s extremely rare that a seller would get cold feet at that point (it takes months for a home to prepare for listing). There is no legal perspective the Washington Realtor’s association has on “non-refundable” deposits and the seller being able to keep more than 5% of the sales price yet, but only because this is a newer practice that hasn’t had enough time in civil court. We’ll talk about EMs over 5% and “non-refundable EM” if it comes up in our home search, but for now only consider this: an Earnest of 5% of the sales price is the most attractive.
The funds will be held by Escrow and go towards a buyer’s costs to close and/or downpayment. Average for non-competitive homes is ~2-3% depending on the micro market’s conditions. The more a buyer promises as a deposit, the safer a seller feels and thinks the buyer is serious/won’t get cold feet.
Closing
(10pts)
The closing date is important for a number of reasons - The sooner the close then, 1) the shorter duration both the listing agent and seller will be on pins and needles; 2) the more solid the lending or funds transfer appears; 3) the seller may avoid another mortgage payment; 4) the seller may stop paying for staging rental; 5) the sooner the listing agent is paid and listings can cost an agent a lot of money to market, especially for a newer or less producing agent.
Cash offers can close in 2-3 days but typically close in 10-14 days in order to allow time for Title to conduct their research for Title Insurance.
Some online, out-of-state, and/or big banks take 30-45 days to close, reputable local lenders take 21-25 days to close, and reliable lenders with underwritten pre-approvals can close in 10-15 days, making them comparable to cash transactions.
Other
(5pts)
How the offer is presented to the listing agent/seller, how serious the buyer appears, how professional the agent appears, and other considerations will be considered especially if two offers are competitive and hard to decide between. Was the offer full of errors? Was the offer submitted in a manner the listing agent asked them to submit? Did the buyer’s agent communicate with the listing agent before the offer was drafted?
If an escalation clause is used, where the price starts and how large of an increment the escalation climbs by showing the seller how serious the buyer is about wanting the home. A buyer starting under the asking price but willing to escalate well over asking appears odd to most sellers and has them questioning the buyer’s actual desire for the home and if the buyer is going to get cold feet.
Personal “love letters” can be used but many listing agents get upset at the buyer using them or at the buyer’s agent for allowing the buyer to use one. Either way, the listing agent may have resentment towards that buyer and might not present the offer as well as they would have. On the other hand, the sale of a home is an emotional process and the seller may appreciate the buyer adding a personal touch to an otherwise cold transaction. I’ll strategize what is best for each listing and determine the buyer’s ability to write an emotion-invoking letter - What we call a “love letter”.
To my sellers, we’ll figure out what is most important to you before, during, and after our offer review, and know that it’s perfectly fine to have your priorities change. It’s an emotional sale and you’re allowed to think however you wish - I’m just here to advise on risks and rewards.
To my buyers, I’ll research and also ask for clues of what the seller is looking for in an offer.
