Evaluating Offers On Your Fix and Flip? 👏 Choose Wisely

The Best Deal Is Not Always Obvious

With 30-year mortgage rates hitting a three-year low last week, the housing market is starting to thaw. The good folks at Freddie Mac report the 30-year fixed rate at 6.06%, compared with 7.04% a year ago. With more buyers in the market, that means you may end up fielding multiple offers for your investment property.

We can only hope. 

As you well know, breathing new life into a foreclosed fixer-upper and getting it on the market is no small task. Rehabbing a neglected property requires lots of hard work, patience, and a bit of good luck. 

But there is no point in relying on good luck when it comes to selling the finished home. If you've priced it right and marketed it well, you should be well-positioned to receive multiple offers. Music to your ears, right?

However, not all offers are created equal.

Are any of the buyers bringing an all-cash deal?
Regardless of the price, this may be the best offer for you. Why? Because lining up financing can be time-consuming and fraught with unknowns. Think of a cash buyer as a bird in the hand. Why risk stomping through the bushes to find other offers? We've said it before, and we'll say it again: when it comes to house flipping, time is money.

Is there a financing contingency?
Unless you are fortunate to receive an all-cash offer, you may be looking at an offer that is contingent on the buyer securing a loan. In that case, there are many more factors to consider, including whether or not the buyer is pre-approved, the amount of earnest money offered, the down payment made by the buyer, and the type of loan used.

 Pre-Approval: Has a mortgage lender already evaluated your borrower's finances and found them to be creditworthy? If so, that goes a long way when assessing the strength of the offer. You know that pre-approved buyers are serious contenders since they've already gone to the trouble of contacting a lender to expedite the process. At the risk of repeating ourselves, time is not on your side when it comes to flipping and selling a house. Since pre-approval speeds up the process, it's a major plus.

 Earnest Money Deposit: If the borrower puts up a significant deposit, it's a good indication that the buyers are serious about the property. Since the earnest money goes away if the buyers walk away from the contract, the more skin they have in the game, the better. They are much less likely to walk away from $10,000 than from $1,000.

 Down Payment: A higher down payment often indicates a strong buyer. Conversely, a lower down payment could point to shakier finances, which may lead, ultimately, to the buyer being unable to secure mortgage financing. This becomes especially unfortunate (and time-consuming) if you have already turned down other offers and must start soliciting bids all over again.