How to Protect Yourself From a Bad Home Sale

by sarah.gregory on April 18, 2013

  • Sumo

(Guest post from the US) Selling a home is a big deal. Huge. Sellers are usually assumed to be the ones taking huge risks on the purchase, but they actually take a fair amount of risk in selling. Not all buyers are what they appear to be. Sometimes, a buyer will make unreasonable demands or will demand something that they don’t actually need. This causes you to drop the price lower than what you had hoped for which can impact your financial plans after the sale. Here’s how to protect yourself from a bad home sale:

Get Pre-Approval From The Buyer

Don’t take the buyer’s word for it that he’s going to buy. Ask for proof of pre-approval. Many buyers still don’t get it. They need to be approved by a bank before they can buy a home. What usually happens is that they receive a pre-qualification for a loan and think that they have a guaranteed loan offer.

You want to know exactly what the buyer has. A pre-approval means the bank is ready to loan money to the buyer. A pre-qualification simply means that the bank has done a cursory review of the borrower’s finances and discusses financial goals with the borrower. A simple analysis of the borrower’s income and debts, as well as assets, is done. No formal loan application is filled out though – which means there’s no actual loan guarantee or commitment on the part of the bank.

Where the problems comes in is if you agree to sell the home to the buyer without a pre-approval or some kind of loan commitment from the bank. Signing a contract with the buyer without funds means that you must turn away other buyers – buyers with money.

Don’t Ignore The First Offer

Real estate agents have seen it time and time again: sellers turn away the first buyer in the hopes that future offers will be better. It’s a pipe dream. Usually, the first offer is the best one you’re going to get, and there’s a very good reason for that. The first buyer tends to be the most motivated. When you list your home, especially if you promote it in the local paper or through a real estate agent who does any kind of advertising, it gets seen by a fair number of people.

A lot of folks will just sit on the listing and think about it. They may be casually shopping for a home or they may have other homes that they’re more interested in. The one who makes the first offer on your home probably has it at the top of his list of preferred homes (hence the reason he’s contacting you before anyone else). Don’t make the mistake of passing up the offer, hoping that the grass might be greener on the other side of the fence. It’s usually not.

Don’t Agree To Unreasonable Buyer Credits

Sometimes, buyers will make a contingent offer or they will ask for credits after a home inspection. They want a fence painted, or wallpaper taken down, or something fixed before they agree to buy your home. Maybe there’s something legitimately wrong with the house – like a failing HVAC unit. Before offering buyer credits, consider the real cost of fixing any legitimate problems. Then, weigh this carefully against the offer they are making.

If the credit equals more than a 6 to 9 percent discount in the price of your home, and there’s nothing seriously wrong with the house, you’ve suddenly become the victim of a low-baller of the worst kind. If you can fix a finicky furnace, or leaky pipes, or a porch with some dry rot for a few hundred dollars (or even a few thousand dollars), it might make sense compared to a credit of $1,000, $5,000, $10,000 or more on the home.

Sarah Gregory is a real estate consultant with a penchant for private sales. Her articles mainly appear on home owner blogs where she enjoys sharing her insights.

Latest posts by sarah.gregory (see all)

Previous post:

Next post: