How To Qualify A Buyer When Selling Property
During the sales process of a property, when you receive an offer, you’ll want to determine if the buyer has capability to follow through with the deal. In a previous article, I discussed attracting the right buyer. In this article, we’ll look at understanding how to qualify a buyer, which can save time, avoid surprises later, and increase the likelihood of a smooth transaction.
Follow these steps when qualifying a buyer during the sales process:
1. Evaluate the Buyer’s Experience
Check whether the buyer has worked on comparable transactions in the past. Buyers who have a successful track record in the market could be considered credible and more likely to close the deal. Newer investors may need to work with partners to carry out the process. You can learn more about partnering when investing in real estate in my book, “The Insider’s Edge to Real Estate Investing.”
2. Determine the Source of the Buyer’s Equity
Is the buyer using their own capital, or are they raising funds from other investors? Seasoned investors may have a system for raising money from other sources. However, for newer investors, they may be reaching out to others for the first time to gather the funds.
3. Consider Proof of Funds
A common way to qualify a buyer is by requesting proof of funds. A bank statement which shows liquidity can help show the buyer is able to act financially. Proof of funds can come in other forms, including a letter from an accountant verifying the buyer’s net worth. Keep in mind that proof of funds letters can sometimes be subjective, and sellers need to verify the authenticity of the information provided.
4. Evaluate Financing Plans
Does the buyer plan to finance the deal with debt, and if so, how much? If the buyer needs to secure financing, important to ensure that they are seeking realistic leverage. Buyers looking to finance 80% to 90% of the property’s value might struggle to close.
5. Review the Buyer’s Preliminary Due Diligence
Although full due diligence—such as environmental studies or property condition reports—is typically done after a contract is signed, it’s important to know if the buyer has already spent time studying the property. Have they inspected the property? Do they have a clear understanding of any existing issues, such as zoning concerns or required repairs? If the buyer is well-informed about potential challenges and still moves forward with an offer, they are likely serious about following through with the transaction.
6. Check References
Has the buyer worked with brokers, attorneys, or banks in the past? Speaking with these professionals can provide insight into the buyer's credibility and reliability. For example, a conversation with a broker who previously represented the buyer may reveal how smoothly past transactions went. Reviewing who represents the buyer—such as their law firm—can be useful too.
7. Assess the Buyer’s Deposit and Contract Terms
Buyers who submit a deposit, which in New York is typically 10% non-refundable, are likely committed to closing the deal. Those offering smaller deposits or requesting extended due diligence and exclusivity periods may be less serious. In some cases, these buyers could be tying up the property while they explore other opportunities or attempting to flip the property for a better price. You can learn more about the closing process in my Sell High series episode, “How Does the Contract and Closing Work?” on my podcast The Insider’s Edge to Real Estate Investing.
By reviewing the buyer's experience, equity sources, financing plans, preliminary due diligence, and deposit, you can better determine whether they have the capability to close the deal. Properly qualifying a buyer reduces risks, saves time, and ensures that you are working with someone who can complete the transaction. Ultimately, the goal is to identify not just the highest offer but the best and most reliable one for your property.