The Highest Offer is Not Always the Best Offer
Property sales contracts typically include a contingency based on the buyer securing financing. With respect to a financing contingency, offers from buyers are considered by a seller based on three primary criteria. The first criterion is the net amount the seller will realize from the offer. The second criterion is the size of the planned down payment. Offers from buyers that are personally financing the purchase through a sizeable (20% or more) down payment are generally more likely to quickly acquire adequate financing, and therefore, more desirable. The third criterion is the status of the buyer's financing. At the time the offer is made, the buyer's status may be pre-qualified, pre-approved or neither. The value of the buyer's offer from a seller's perspective is as follows:
Buyer is neither pre-qualified nor pre-approved
This buyer provides no tangible evidence of his/her ability to afford your property. The seller rightfully wonders how serious and financially realistic the buyer is. The seller isn't likely to accept anything except a top dollar offer, and then, only if the financing contingency risk can be significantly reduced in a few days.
Buyer is pre-qualified
This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has provided to the mortgage broker income, expenses, debt, asset and liability information. The mortgage broker may have checked the buyer's credit report. The buyer can provide you with a letter from the mortgage broker stating an opinion of what the buyer can afford.
Buyer is pre-approved
This buyer has completed a loan application, provided the mortgage broker or lender with written evidence of income, expenses, debt, assets, liabilities and credit. All information has been verified by the lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. The buyer can provide you with a letter (pre-approval certificate) from the lender. The seller can be reasonably confident that this buyer can get a Loan Committment and close.
When an offer is accepted, the seller's property is effectively, if not actually, no longer available to other potential buyers. Should the buyer fail to acquire financing, the seller has probably lost the opportunity to attract and negotiate with other buyers and has to restart the marketing of the property. No seller wants to waste time and money with a buyer that cannot get financing.
Improving Your Credit Score
Would you like to lower the interest rate available to you on your next mortgage? Do you want to know the difference between the interest rate available to persons with A+, A, A-, B, and C credit scores? One of the first things, if not the very first thing, to do when you are considering a real estate purchase is to find out how you can improve your credit score in order to lower the cost of your financing. Contact us or one of our preferred or recommended mortgage providers and we may be able to help you help yourself to a better rate and lower closing costs on your next mortgage.