All Things Real Estate

It is exciting to get offers on your home, but that is all they are unless a buyer is qualified. And by qualified, I don't just mean financially. A good buyer is both able and willing to buy your home.

An Able Buyer

By Able, I am referring to the buyer's financial ability to purchase the home. This ability is generally determined by a lender through a series of financial calculations and then validated by the issuance of a mortgage pre-approval. This buyer qualification is determined from the following reviews.

They have enough money to make a down payment and cover closing costs

For today's most widely-used purchase mortgage programs, down payment minimum requirements are:

• FHA Loan: 3.5% down payment minimum
• VA Loan: No down payment required
• HomeReady™ Loan: 3% down minimum
• Conventional Loan (with PMI): 3% minimum
• Conventional Loan (without PMI): 20% minimum
• USDA Loan: No down payment required
• Jumbo Loan: 10% down

They have sufficient income to afford the home

A household should spend no more than 28% of its gross monthly income on housing expenses. This is called the "front-end ratio."

They have good credit

They're not managing too many other debts

Lenders calculate your debt-to-income ratio by dividing your monthly debt obligations by your pretax, or gross, income. Most lenders look for a ratio of 36% or less, though there are exceptions

A Willing Buyer

To qualify as a willing buyer, a person must exhibit the urgency and intention to purchase the home. This willingness is generally demonstrated from the terms of the offer letter and purchase contract. These terms are key indicators of willingness when qualifying a buyer.

Purchase Price

A red flag that I look for is a purchase offer over the asking price without an escalation clause (incremental increases over a competitive buyer). This can be an attempt by a buyer to stave off the competition and then try to obtain financial concessions based on an "over-analyzed" home inspection, thus lowering the net sale price. And yes, it is unethical, but does occur.

Earnest Money

Also known as "Good Faith" money, is a deposit of money by a buyer to show that he or she has the intention of completing the deal. Earnest money is usually applied to the purchase, but may be nonrefundable if the deal does not go through. I like to see between 1% – 3% of the sales price committed, as anything less than that makes it too easy for a buyer to change their mind and walk away.

Requested Closing Date

The requested closing date is an easy determination of drive. The sooner . . . the better, as long as it works with your timeline. A drawn out date just leaves more time for "Life" to get in the way and the sale to fall through.

Contingencies

The contingency that I am most concerned with for my seller is one that is based on the sale of the buyer's home. I then need to know whether the home has already been listed, the asking price, any existing contract conditions and current market conditions. I can then run my own comparative analysis to determine how quickly the home may sell. In this case, many Realtors would urge you to add a "kick-out clause". This means that you retain the right to market your property, and if you get a better offer, you can accept it. However, you must give the current buyer a right of first refusal, giving the buyer a limited time (48 hours is common) to remove the contingency and close. Though it sounds good, the property will still be listed as "under contract" and not be visible to the online search engines.

Contingency timing

Release timing of contingencies is also a flag for me. Commitment to remove contingencies, like home inspections, legal reviews and appraisal in a timely manner, displays the willingness of a buyer to move forward. Requests for anything in excess of three days for a legal review of the contract and 7-10 days for a home inspection should be scrutinized.

Home inspection issues not only cost you money to repair, they can also lower the overall perceived value of your home.

When you sign an agreement to sell your home, one of the first contingencies the buyer will place on the contract is that of a home inspection. The language is usually written as, "Contingent upon Buyer's satisfaction with inspections". A home inspection is an examination of the current condition of a house by a certified professional home inspector. Home inspections are used to provide an opportunity for a buyer to identify any major issues with a house prior to closing. The following is a list of some of the most common issues identified in a home inspection.

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