By Korey Welch, Owner of Boom Realty 

and Senior Mortgage Broker, Loan Factory

Your house hits the market. The open house is packed. Monday morning arrives and you have five offers sitting on the kitchen table. One is $20,000 over the asking price. Another is $40,000 over asking. And sitting on top of the pile is the big one: $75,000 over asking.

Easy decision, right?

Take the highest offer. Not so fast. One of the biggest mistakes sellers make is assuming the highest number on the first page of an offer is automatically the best deal.

It isn’t. Sometimes the highest offer is the one I like the least.

An offer is more than a price

When I review offers for a seller, I’m not simply looking at one number. I’m looking at the entire deal. How much is the buyer putting down? What type of financing are they using? Do they have an appraisal contingency? Are they willing to cover an appraisal shortfall? How much are they willing to cover? Are they waiving an inspection or limiting what they can renegotiate? How strong is their financing? How much cash do they actually have available?

And most importantly: How much of that beautiful offer price is my seller realistically going to receive? Because there can be a very big difference between an offer price and a closing price.

The $800,000 offer that isn’t really $800,000

Imagine a home is listed for $700,000. After a busy weekend, you receive an offer for $800,000.

Fantastic.

Except the buyer is putting 5% down and their offer contains a full appraisal contingency. Now suppose I believe the home is probably going to appraise around $740,000. That $800,000 offer suddenly doesn’t look quite as impressive. If the appraisal comes in at $740,000, the buyer may have the ability to come back and say, “The house didn’t appraise. We need to renegotiate.” And now your $800,000 offer may become a $740,000 conversation.

Meanwhile, perhaps another buyer offered $770,000, is putting 25% down and agrees to cover an appraisal shortfall up to $30,000.

Which offer is better?

The $800,000 offer looks better on paper. The $770,000 offer may put more reliable money in the seller’s pocket. That’s the difference between reading an offer and understanding one.

I negotiate the terms, not just the price

There have been many times in my career when the offer I wanted my seller to accept was not initially the highest offer. That doesn’t necessarily mean I simply accept the lower one. I negotiate.

If I have a strong buyer putting substantial money down but another buyer is offering a higher price, I may go back to the stronger buyer and tell their agent what needs to improve for us to make the deal work. Maybe they increase their price. Maybe they increase their appraisal-gap protection. Maybe they modify another contingency. Now I’ve potentially created an offer that combines a strong purchase price with substantially less risk.

That’s where experience matters.

My goal isn’t to be able to tell the seller: “Congratulations, we accepted the highest offer!” My goal is to be able to tell them: “Congratulations, we closed.” Those are two very different accomplishments.

The appraisal can be the reality check

This becomes particularly important when homes receive offers dramatically over the asking price. I have appraisal experience myself, and that background has been extremely useful when evaluating offers. I am always asking: Can I defend this sale price with comparable sales?

Because an appraiser doesn’t care that there were 40 people at the open house. An appraiser doesn’t care that six buyers got emotional on Sunday night. And an appraiser certainly doesn’t care that everyone really, really wanted the house.

The appraiser has to support the value. Some properties are relatively straightforward. Others are not. Unique homes, unusual layouts, limited comparable sales, acreage differences, condition differences and rapidly changing markets can all make valuation more difficult. So when somebody offers substantially over asking, I don’t just celebrate. I start doing math.

Appraisal gap: Three very important words

This is where an appraisal-gap provision can become extremely valuable. Let’s say a buyer offers $775,000 but agrees to cover an appraisal shortfall of up to $25,000. If the property appraises at $750,000, the buyer has already agreed that they will still pay $775,000, subject to the exact terms of their offer.

That’s meaningful.

Now compare that with someone offering $800,000 with no appraisal-gap protection. If the appraisal comes in at $750,000, which buyer would you rather have?

Exactly.

The highest offer isn’t necessarily the highest guaranteed – or most defensible – price. And that distinction can be worth tens of thousands of dollars to a seller.

Bigger down payments matter, too

I also pay very close attention to down payments. That doesn’t mean a buyer putting 30% down is automatically better than somebody putting 10% down. But it tells me something about the structure and flexibility of the transaction. A buyer with substantial cash may have more ability to absorb an appraisal shortage, restructure financing, or deal with an unexpected issue without the transaction falling apart. A buyer stretching every available dollar just to get to closing may have much less room for error.

Again, I’m not looking at one number. I’m looking at risk.

Don’t fall in love with the big number

This is where sellers sometimes get themselves into trouble. They see $825,000 and everything else on the page disappears. I understand it. If somebody offers you $50,000 more than everyone else, naturally that’s where your eyes go. But before popping the champagne, somebody should ask why.

Is this buyer simply aggressive? Do they understand the comparable sales? Are they prepared to cover the difference if the appraisal doesn’t support their offer? Or did they throw out a giant number knowing they may have an opportunity to renegotiate later?

An experienced listing agent should be thinking about all of this before the seller signs anything. Because getting under agreement is only half the job. You still have to get to the closing table.

Sometimes the best offer isn’t even the first one

This is also why I don’t believe sellers should automatically reject an early offer just because it arrived quickly. I’ve heard sellers say: “If we got this offer after one day, imagine what somebody will pay next week.”

Maybe.

Or maybe the most motivated, best-qualified buyer just walked through your door. There is nothing wrong with allowing reasonable market exposure, especially when multiple offers are expected. But don’t confuse speed with weakness. A great offer on Day One is still a great offer. The market doesn’t owe you a better one on Day Seven.

This is what you’re paying your agent for

Putting a house in MLS isn’t the hard part. Uploading photographs isn’t the hard part. Putting a sign in the front yard definitely isn’t the hard part. The value of an experienced agent shows up when there are decisions to make. Which buyer is stronger? Which financing is safer? Which contingencies create risk? Can the price survive an appraisal? Can one offer be renegotiated into something better? What happens if something goes wrong?

That’s where experience should earn its money. I’ve spent more than 26 years in the real estate and mortgage industries. When I’m representing a seller, I’m not trying to collect the highest piece of paper. I’m trying to structure the transaction that gives my client the best combination of price, certainty and probability of actually closing.

The bottom line

If you receive multiple offers on your home, don’t simply line them up from highest price to lowest and pick the one on top. Read the entire offer. Understand the financing. Understand the contingencies. Understand the appraisal risk. And understand exactly how much of that offer price is truly protected. Because sometimes an offer for $800,000 is worth $800,000.

And sometimes it’s really an offer for: “$800,000…unless something happens.” Those last four words matter. A lot. The highest offer may win the beauty contest. The best offer is the one most likely to put the most money in your pocket at the closing table.

Sell smarter! List for 1%.

About the Author: Korey Welch, Owner of Boom Realty and Senior Mortgage Broker (NMLS: 14991) with Loan Factory (NMLS: 320841), is a licensed mortgage broker/real estate broker based in Rockland. For more than two decades, Korey has been helping seniors determine the best fit. For a complimentary consultation, contact him at korey@koreywelch.com, 781-367-3351.