Just like buyers can on the lookout for signs that a home isn’t all it’s promised to be, sellers should also know and be able to recognize the different signs that can show that an offer just isn’t worth the trouble it could bring. Accepting a bad offer can cause a homeowner to lose money, not move on time, or even worse, so it’s important to recognize the signs. Here are some of the most common red flags that sellers need to know and why they should raise flags when they show up.
1. Small Earnest Money Offer
When a buyer makes an offer on a home, they also include what is known as an earnest money payment. If the offer is accepted, the homeowner the payment goes to the homeowner, and if he buyer has to pull out of the deal and isn’t protected by a contingency, the seller gets to keep it. Because of this, buyers use large earnest money offers to show homeowners that they’re serious about purchasing the home. When a buyer makes an offer that has a small earnest money offer or doesn’t include one at all, it can be a big red flag. If a buyer has little or nothing to lose by backing out of a sale, there isn’t very much stopping them from doing so if a better home comes on the market before closing, and that sets the seller back to square one.
2. Too Many Contingencies
In order to protect themselves from losing their earnest money payment, buyers may try to rely on contingencies. While a few contingencies are normal and expected, a red flag pops up when the buyer seems to be adding as many contingencies as they can think of to try to cover any situation that could possibly pop up. The most common contingencies see in offers on a home are the home inspection, financing, and home appraisal contingencies. Beyond this, buyers may add something specific to the home if it comes off as a concern, but if a buyer is unsure about the contingencies in an offer, they should consult their agent first and foremost.
3. Pre-Qualified, Not Pre-Approved
The first step to buying a new home is to get pre-approved for a mortgage, and many buyers choose to do so before even beginning to look for a new home. This is because homeowners will include the documentation showing they’re pre-approved in their offer to show the homeowner that they’re on top of everything and already have a mortgage lined up. However, some buyers will try to include in their offer that they are pre-qualified, and although it may sound similar to being pre-approved, it’s quite different. Pre-qualification is the step that comes before pre-approval, and it doesn’t guarantee that the buyer will even get to pre-approval because at this point, the lender has not researched the buyer as they are required to do when the buyer seeks pre-approval.
If a buyer is only pre-qualified, they aren’t guaranteed a mortgage, and it if the seller accepts their offer, it will take a lot longer for them to be approved for a loan than it would someone who is already pre-approved.
Sellers need to be on the lookout for red flags to give their sale the best chance to run smoothly. Accepting an offer from a West Hillhurst home buyer who shows one or more of these signs can potentially prevent a bad deal and help sellers identify the buyers who are truly serious about their home.