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How to Assess a Home Buyer's Strength

As we make our way into the busiest sales time of the year, one of the biggest jobs that Ken and I have is to help our sellers evaluate the offers of potential buyers of their homes. Not all buyers are created equal and we know it is important to our sellers to work with buyers who have the ability and motivation to get to the closing table.

So, what should sellers keep in mind when considering offers from buyers? What are the factors that can help sellers decide which buyer they would like to work with?

Here are just a few of the factors that could have a significant impact on the course of a transaction:

1. The Type of Financing a Buyer Chooses: Different kinds of home loans have different requirements for buyers and have different underwriting guidelines. 30 year conventional loans are typically seen as the gold standard with regard to financing, but that doesn’t mean that other types of loans should be less compelling to a seller.

FHA loans and VA loans may have additional hurdles for buyers and sellers to jump over (specifically with regard to appraisal guidelines- that’s a story for a different day) and in our market, those hurdles can make it a bit harder for buyers with these loans to win competitive offer situations. Ken and I find that, in most cases, sellers shouldn’t be overly concerned about the additional stipulations associated with FHA and VA loans, and in fact, buyers using this type of financing are typically very motivated to get to the closing table.

If a buyer doesn’t need to take out a loan to purchase a home and they have cash, that could be quite compelling in the eyes of a seller. Cash buyers can usually close quickly and have less contingencies in their contract, meaning they have less opportunities to leave the real estate contract based on financing issues. However, in exchange for this speed and convenience, cash buyers can try to drive a hard bargain and may end up offering less for a home than other buyers who need to finance their purchase.

2. The Amount of a Buyer’s Down Payment: At the end of the day, the amount a buyer is putting down on their loan won’t matter much to a seller. The bottom line won’t change, whether a buyer puts down 3% on an FHA loan or 20% on a conventional loan. However, a higher down payment signals a buyer’s financial strength and for a seller, that peace of mind can be important. If a buyer is putting down a larger down payment, they are less likely to be flustered by some of the challenges that can come up during a home transaction. If issues with the property arise during the home inspection, or if the buyer has some unexpected expenses outside of the home purchase, a buyer with a higher down payment may be able to weather those bumps more easily than a buyer who has a smaller down payment amount.

3. The Source of a Buyer’s Funds for Closing: This is a vital part of any real estate transaction and it comes down to whether or not a home buyer has a home or other asset they need to sell in order to access their down payment funds. A home buyer who has their down payment funds all ready to go is likely to be more compelling to a seller than a buyer who needs to sell a car, home, or other investment in order access their down payment.

4. The Lender the Buyer has Chosen to Use: The lender is a huge piece of the home purchase puzzle and lenders can make or break real estate transactions. In our real estate market, which is characterized by being quick and competitive, sellers should look to buyers with lenders who are thorough, flexible, and accessible.

We always make a point to proactively vet each buyer’s qualifications with both their broker and their lender in order to help our sellers determine the best course of action based on their goals.

As always, if you have questions, don’t hesitate to reach out. Until next time!