Receiving an offer is one of the most anticipated moments in the sale of a property. Receiving several competing offers can be even more exciting, particularly when one appears to offer substantially more money than the others.
It is natural for a seller’s attention to immediately move toward the highest price.
Price matters. Sometimes it will quite properly be the deciding factor. But an Agreement of Purchase and Sale contains much more than a purchase price, and every other term in the agreement can affect the value, certainty, cost and risk of the transaction.
A strong offer should therefore be evaluated as a complete package.
The better question for a seller is not simply, “Which buyer is offering me the most money?”
It is:
“Which offer gives me the best overall probability of achieving the outcome I want?”
Begin With Your Selling Objectives
The best time to decide what matters in an offer is before the offers arrive.
A seller should have already considered their priorities. Is maximizing price the overriding objective? Is certainty of closing particularly important? Does the seller need a specific closing date because another property has already been purchased? Are there financial carrying costs associated with a delayed closing? Is flexibility important, or would a failed transaction create serious consequences?
Different sellers can reasonably evaluate the same two offers differently because they have different objectives.
A seller who has already purchased another property may place considerable value on a firm offer with a convenient closing date. An estate selling a vacant property may have different priorities. A commercial owner may be concerned with tenant arrangements, environmental conditions or the purchaser’s ability to obtain financing, while an investor may be evaluating tax, income and disposition considerations alongside price.
Establishing these priorities beforehand provides a reference point when offers arrive and emotions inevitably increase.
Compare the Whole Offer, Not Just the Price
Consider two offers.
One buyer offers $1,000,000 with a substantial deposit, no financing condition and a closing date that aligns well with the seller’s plans.
Another offers $1,020,000 but requires financing approval, includes a condition on the sale of the buyer’s existing property and proposes a closing date that creates additional carrying or bridge-financing costs for the seller.
Which is the better offer?
There is no automatic answer.
The additional $20,000 has obvious value, but it needs to be considered alongside the additional uncertainty and potential costs attached to obtaining it.
This is where professional offer analysis becomes considerably more useful than simply ranking offers from highest to lowest.
Conditions Transfer Risk Between the Parties
Conditions are not inherently good or bad. They exist because one party requires protection before becoming fully committed to the transaction.
A financing condition protects the buyer if financing cannot be obtained. An inspection condition may allow the buyer to investigate the property’s physical condition. A condition on the sale of the buyer’s existing property protects that buyer from owning two properties if their current property cannot be sold.
Each condition may be entirely reasonable from the buyer’s perspective.
From the seller’s perspective, however, every condition needs to be considered in terms of what it means for the certainty of the sale.
If an offer is conditional for five business days, the seller may effectively be taking the property off the market while the buyer decides whether to proceed. If the condition is not fulfilled or waived, the transaction may collapse and the seller could find themselves returning to the market after other interested buyers have moved on.
The question is therefore not simply whether an offer contains conditions. Sellers should understand what those conditions are, how long they remain outstanding, what uncertainty they create and what happens if they are not satisfied.
Financing Certainty Matters
The original version of this article quite properly raised financing as an important consideration. I would give it considerably more emphasis.
An accepted offer does not guarantee a completed transaction.
The purchaser still needs to have the financial ability to close.
A buyer may have a mortgage pre-approval, substantial down payment or other evidence suggesting strong financial capacity. Another buyer may require financing approval that depends upon the lender accepting both the purchaser and the property.
Sellers and their representatives should be careful not to act as lenders or make unsupported judgments about a purchaser’s financial circumstances. Nevertheless, where information concerning financing certainty is legitimately available as part of an offer, it can form part of the seller’s overall assessment of transaction risk.
A slightly higher price has limited value if the buyer ultimately cannot complete the purchase.
The Deposit Tells Part of the Story
The deposit is another component sellers sometimes overlook when concentrating on price.
A meaningful deposit demonstrates that the purchaser is prepared to commit funds to the transaction and provides security associated with the purchaser’s contractual obligations, although the legal treatment and entitlement to a deposit following a failed transaction can depend upon the circumstances and legal advice.
Sellers should therefore consider the amount of the deposit, when it is payable and the terms governing its delivery alongside the other components of the offer.
A higher price accompanied by an unusually small or delayed deposit may deserve closer examination than the price alone suggests.
Closing Date Has Financial Value
The closing date can materially affect the economics of an offer.
Suppose one offer closes on the exact date the seller needs, while another closes a month later. If the seller has already purchased another property, the later closing could result in additional mortgage interest, bridge financing, property taxes, insurance, utilities and other carrying costs.
Conversely, an earlier closing may create temporary accommodation, storage or moving costs if the seller is not ready to leave.
Those expenses effectively change the value of the offers.
A $10,000 higher offer that creates $7,000 of additional costs is not economically $10,000 better.
The closing date should therefore be evaluated as a financial and practical term, not simply a date appearing near the end of the agreement.
Inclusions, Exclusions and Other Terms Have Value Too
Offers may differ in what buyers expect to remain with the property.
Appliances, equipment, fixtures, furniture, commercial machinery, inventory or other assets can sometimes have meaningful financial value. Buyers may also request repairs, warranties, vacant possession, specific documentation or other commitments from the seller.
Each obligation deserves consideration.
An offer that appears financially superior can gradually become less attractive as additional seller obligations are identified.
The proper comparison is therefore the net overall transaction, not simply the headline purchase price.
Certainty Has Value
This is one of the most important concepts for sellers to understand.
Certainty does not appear as a dollar amount in an Agreement of Purchase and Sale, but it has economic value.
A firm transaction allows the seller to make subsequent decisions with greater confidence. Moving arrangements can be made, another property can be purchased, financing can be organized and business or investment plans can proceed.
A heavily conditional transaction leaves more of those decisions unresolved.
That does not mean sellers should automatically reject conditional offers. Conditions may be appropriate and sometimes unavoidable.
It means the seller should recognize that certainty itself is one of the things being negotiated.
Professional Insight
Two offers with different prices should not necessarily be compared dollar for dollar. The more useful comparison considers price together with conditions, costs, timing, obligations and the probability that each transaction will actually close.
Consider the Cost of a Failed Transaction
When evaluating an offer, sellers should also consider what happens if the transaction does not complete.
A failed transaction may mean returning the property to the market after days or weeks have passed. Other interested buyers may have purchased elsewhere. Market conditions may have changed, and prospective purchasers may wonder why the property is available again.
The seller may also incur additional carrying costs, moving complications, legal expenses or problems with another transaction that depended upon the sale closing.
This does not mean every conditional offer presents unacceptable risk.
It simply means that the consequence of failure should form part of the decision.
For some sellers, that consequence may be relatively minor. For others, certainty may be worth considerably more.
Competing Offers Require Discipline
Multiple offers can create excitement and pressure for everyone involved.
The presence of competition can encourage buyers to improve price, remove conditions, alter closing dates or strengthen other terms. For the seller, however, competition also creates the possibility of becoming overly focused on achieving the highest possible number.
This is where the objectives established before receiving offers become particularly useful.
If the seller originally identified price, certainty and a particular closing period as the three most important objectives, each offer can be evaluated against those criteria rather than simply responding to the excitement of the moment.
The highest offer may still win.
But it should win because it provides the best overall outcome—not merely because it contains the largest number.
Sometimes a Lower Offer Is the Better Offer
Imagine receiving these two offers:
Offer A: $1,015,000, conditional upon financing and the sale of the purchaser’s existing property, with a relatively small deposit and a closing date six weeks later than the seller prefers.
Offer B: $1,000,000, firm, with a stronger deposit and the seller’s preferred closing date.
It would be incorrect to automatically say Offer B is better.
It would be equally incorrect to automatically say Offer A is better because it offers $15,000 more.
The seller needs to decide what that additional $15,000 is worth relative to the additional conditions, timing and execution risk.
That is the decision.
And it can only be answered properly in the context of the seller’s objectives.
A Counter-Offer Can Sometimes Improve the Best Opportunity
Evaluating offers does not necessarily mean choosing one exactly as presented.
A seller may identify an offer with an attractive price but an inconvenient closing date, or a strong firm offer whose price is slightly below expectations.
Depending upon the circumstances and applicable offer process, there may be an opportunity to negotiate particular terms rather than treating every offer as an all-or-nothing proposition.
This is where understanding the other party’s priorities becomes valuable.
Perhaps the buyer has substantial flexibility on closing but little flexibility on price. Perhaps the seller can accommodate a particular inclusion that matters greatly to the purchaser but has limited value to the seller.
The objective is to determine whether the strongest elements of an offer can be improved without sacrificing the seller’s most important priorities.
Commercial and Investment Offers Require an Even Broader Analysis
The same principles become even more important in commercial, industrial and investment transactions.
Price may need to be considered alongside financing, environmental investigations, zoning, tenant estoppels, lease reviews, financial due diligence, vacant possession, assumption of contracts, representations and warranties, corporate approvals and other transaction-specific requirements.
A commercial purchaser offering the highest price but requiring an extensive due diligence period and broad termination rights may present a very different proposition from a slightly lower offer with greater transaction certainty.
Sellers need to understand not only how much the purchaser is offering, but also what the purchaser needs to happen before they are actually committed to completing the transaction.
That distinction can materially affect the seller’s decision.
Professional Representation Helps Put the Pieces Together
Reviewing offers involves more than reading out prices.
Professional representation helps sellers understand how the terms interact, identify potential risks, compare financial and practical consequences, evaluate negotiating alternatives and coordinate questions that may require legal, accounting, financing or other professional advice.
The representative should not make the decision for the seller.
The objective is to ensure the seller understands enough about each offer to make that decision intelligently.
Sometimes that analysis confirms that the highest-priced offer is clearly the strongest.
Sometimes it reveals that another offer provides a better overall outcome.
Either result is appropriate when the decision reflects the seller’s objectives.
Final Thoughts
When offers arrive, price deserves attention.
But it should not receive attention in isolation.
Conditions affect certainty. Financing affects the probability of completion. Deposits affect commitment and transaction security. Closing dates can create costs or solve logistical problems. Inclusions, exclusions and additional obligations can change the economics of the agreement, while the consequences of a failed transaction may differ considerably from one seller to another.
The strongest offer is therefore not necessarily the one promising the most money.
It is the offer that provides the most attractive combination of price, terms, certainty, timing and risk for that particular seller.
Knowing which combination matters most is much easier when the seller has established their objectives before the offers arrive.
And that is ultimately what good offer analysis should accomplish: not simply identifying the highest bid, but helping the seller determine which transaction is most likely to deliver the outcome they actually wanted when they decided to sell.
Guidance for Smarter Real Estate Decisions.
Written by Rodney Harvey, Broker of Record at Konfidis, Brokerage providing advisory-focused commercial, industrial, investment, and real estate brokerage services across Oshawa, Durham Region, and Ontario.
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