Learn How To Make An Offer On A House
Carey Chesney5-Minute Read
November 25, 2020
So you’ve found the house of your dreams – or least the right house for right now – congrats! The next logical question floating in your head is "do I know how to make an offer on a house?" Fear not, here we’ll cover all the ins and outs of this process, giving you the tools and knowledge to put yourself in the best possible position to secure your new home.
Drafting An Offer Letter
You may be wondering where to begin to ensure you submit the best offer possible. Now is the time to huddle up with your real estate agent to do the following in order to draft a competitive offer:
- Confirm feasibility based on price: Prior to the home search, you probably already asked yourself the question “how much money do I need to buy a house?” If you received preapproval from a lender before the home search (which you should) then the numbers have already been run and you know exactly how much you can pay. If not, now is the time to take that step before you submit an offer.
- Run comps and understand the local housing market: Your real estate agent will run comps, which is the process of reviewing recent sales of similar homes to the one you're thinking of making an offer on to determine if the asking price is too high, too low, or just right. Once they share this information, it’s time for you to decide what price you want to offer.
- Set the offer price, contingencies and timelines: Now that you know what you and your agent think the home is worth, it’s time to consider other factors that should inform your offer price and the other components of your offer. Things like seller motivation (how fast they want to sell) and offer timing (when you should submit) are important to take into consideration when drafting an initial offer. Your real estate agent can fish for information on these topics by talking to the listing agent who represents the seller. They can also determine preference regarding inspection contingency timelines, closing date, financing, and a slew of other factors (beyond price of course) that can influence whether or not your offer is ultimately accepted.
Making An Offer On A House
So you’ve hammered out all the details and you feel ready to submit an offer – great! Keep in mind that you should be prepared to negotiate for your desired home’s purchase price or walk away if the terms don’t match your budget. As hard as it sounds, it’s time to try and take the emotions out of it and determine what your max purchase amount is and stay firm on that. Determining this before you make the offer is critical, so you won’t be scrambling to devise a strategy once negotiations begin.
Submit An Offer Letter
Now let’s go through the process of how your real estate agent will submit a legally binding offer letter to the seller. There are various laws surrounding this process that vary on a state and local level, but that is more for your real estate agent to be aware of than you. In addition to the obvious components in the offer like the purchase price amount and the home’s address, a strong offer letter contains the following elements.
- Amount of earnest money: Your earnest money deposit (EMD) is the amount of money you put down right away (usually held in the account of your real estate agent’s broker) that you get back when you get to the closing table or if the deal falls through without you breaking the terms of the contract. The more you put down, the more serious you look to the seller.
- Closing and contract details of current home (if applicable): If your offer is contingent on the sale of your current house, details about when you will put it on the market, or when it will close if you have already accepted an offer, should be included.
- Closing costs breakdown: This is the analysis of what you and the seller will pay beyond the purchase price. This includes the financing of your loan, agent commissions and title fees, just to name a few components.
- Contingencies needed for sale: Inspection, appraisal, financing and the aforementioned possible sale of your current home are just a few of the contingencies you may consider writing into your offer.
- Down payment amount: This is the amount you’ll put down, with the rest of the purchase price being covered by your loans amount (unless you are paying cash). Much like the EMD, the more the better in terms of impressing the seller.
- Names of everyone on the title: As you might expect, the offer needs to include the names of all owners of the house you are trying to buy.
- Offer’s expiration date: If you want an answer soon and think putting a little pressure on the seller is a good idea, you can include a date that your offer will expire if they don't respond in time.
- Potential move-in date: This can occur at closing or after. When you move in after closing you are giving the seller “occupancy” which means you buy the house and then they essentially rent it from you while they prepare to move out.
- Whether or not you’ve been pre-approved for a mortgage: A preapproval letter showing you’re qualified to make the offer in the amount you’re offering is a critical component that puts the seller at ease.
Negotiate The Price Of The House
Once you submit the offer, there are three ways the seller might respond to an offer. They may accept it as-is (yay!), respond with a firm no (boo!) or present a counteroffer (the most common response). This puts the negotiation process in motion and there are a number of negotiation tactics that buyers can use including countering with an offer that meets somewhere in the middle, staying firm on the offer already submitted, or meeting all of their counter offer demands.
If there are other offers for the home in play, there are also various strategies you can employ to win a bidding war, including changing your offer from a loan to cash or waiving various contingencies, just to name a few.
Close The Deal
Once both parties agree to all of the terms of the deal, the contract is updated and the house is officially “under contract.” This marks the beginning of the home closing process.
The first major step is usually the inspection contingency where you hire a professional to find out if there are any issues you may have missed during your showings. Once that is complete more negotiations occur regarding asking for repairs, a reduction in price, or cash from the seller at the closing table to help with your closing costs. Next up is the appraisal, where your lender sends an expert out to assess the value of the home.
If it comes in at or above value, things keep moving along. If not, more negotiation can occur as you try and ensure you don't overpay for the home and the lender feels comfortable approving your loan. Side note: cash deals do not require an appraisal, since there is no loan. Once you are through appraisal the only big item between you and the closing table is the final approval of your loan.
How To Make An Offer On A Bank-Owned House
Before you consider buying bank owned property, there are a few things you should keep in mind:
- Bank-owned homes likely have been sitting, unlived in, for a while. This means their condition could be, well, not optimal.
- Homes are sold as-is, so you usually can't ask for repairs.
- There will likely be a lot more paperwork than a traditional sale, so patience is a virtue.
The Bottom Line
Using the knowledge and strategies outlined here, work with your real estate agent to prepare, submit and negotiate the best offer possible. Knowledge is power, so do some more research on negotiating and bidding war strategies to make sure you’re ready when the time comes to make that offer on your next home.
Table of Contents
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