Red Flags for Home Sellers to Beware Of
Home sellers take a risk when they accept an offer from a buyer. When they sign the contract, they're hoping that the buyer will come through with the money needed to purchase the home. They're also hoping that the buyer will be reasonable throughout the escrow process, which can be long and complicated. If you're a home seller who is hoping for a good experience, watch out for these red flags when considering offers.
Lenders have a qualification process that helps them determine which home buyers are financially capable of repaying a mortgage. Buyers who are most likely to repay their mortgage are the ones who are able to get a loan.
The qualification process is divided into two parts: pre-qualification and pre-approval. Pre-qualification is a relatively easy process. Many people who are not able to qualify for a mortgage make it through the pre-qualification process, only to be prevented from getting the loan later on.
Pre-approval is a longer, more thorough process, and thus is a more accurate measure of who qualifies for a loan. Sellers who want to ensure that the buyer they choose are likely to be able to purchase their house should accept buyers who are pre-approved, not pre-qualified.
Small Earnest Money Deposit
The earnest money deposit is money that the buyer puts down to prove they intend to buy the house. Earnest money is held in an escrow account until the home purchase goes through. If the buyer backs out of the deal, the earnest money may be forfeited to the seller. If the earnest money deposit is very small, it's easier for the buyer to walk away.
Sellers want to know that the buyer is serious about purchasing the home. A large earnest money deposit is a good indication that the buyer is serious.
Too Many Contingencies
Contingencies are a buyer's opportunity to back out of the home buying process. There are three common contingencies that most home buyers include in their purchase offer.
- Financing contingency. This allows the buyer to walk away if the mortgage loan does not fund.
- Appraisal contingency. This gives the buyer the chance to back out of the deal if home appraises for a price that is lower than the purchase price of the house.
- Inspection contingency. The inspection contingency allows the buyer to cancel the home purchase process if the inspection turns up significant problems the seller will not repair.
There are other contingencies that the buyer could write into the home purchase contract. However, too many contingencies could be a sign that a home buyer is looking for extra opportunities to back out of the home sale.
This could be an indication that the home selling process will be a long and hard one, and potentially unprofitable for the home seller. This could also be a sign that the home buyer is afraid to commit to the house, and could mean that the deal will fall through at the last minute anyway.
Contact a Real Estate Professional
If you're a San Pedro home seller who is interested in selling your home sometime in the next year, contact a real estate professional. Your real estate professional can walk you through a home purchase offer and help you decide whether the offer you've gotten on your home is a good one.