Shopping for a home can be an exciting experience, but buying a home can be stressful. After all, you’re making an offer to purchase something worth hundreds of thousands of dollars.
While you can’t control whether the seller will accept your bid, these seven steps can help you make the best possible offer.
Here’s what you need to know about how to make an offer on a house:
- Step 1: Do the Prep Work
- Step 2: Find the Right Home for You
- Step 3: Decide How Much To Offer
- Step 4: Decide Which Contingencies You Need
- Step 5: Write and Submit Your Offer
- Step 6: Negotiate the Deal
- Step 7: Sign the Purchase Agreement
- FAQ: How To Make an Offer on a House
- The Bottom Line on How To Make an Offer on a House
Step 1: Do the Prep Work
It’s important to be well prepared when making an offer on a house. Knowing what you can afford and being ready to follow through if your offer is accepted are key to a successful purchase.
Understand your finances
Before making an offer on a house, you need to understand how much house you can afford. Knowing how much of an earnest money deposit and how much of a down payment you can make, and what you can afford as a monthly mortgage payment, will help you find homes that you’re able to afford and make a successful offer on.
You also should consider the ongoing costs of owning a home.
“Don’t just use the mortgage payment to determine your affordability,” says Erik Wright, owner of Hixson, Tennessee-based New Horizon Home Buyers. “Include the costs of property taxes, homeowners insurance, condo or homeowner association fees, utilities, and maintenance. Even new homes will require repairs and preventative maintenance.”
Get preapproved for a mortgage
To get preapproved, a mortgage lender will conduct a cursory review of your finances and estimate how much of a loan it expects you would qualify for.
While mortgage preapproval doesn’t guarantee loan approval, it gives you an idea of how much you can borrow. It also shows agents and sellers that you’re able to get financing to buy a home, and that you can follow through on an offer and complete a sale.
Find a real estate agent
Having a real estate agent or Realtor in your corner can make the homebuying process easier. Beyond helping you find homes for sale, they can answer questions about the state of the local market, comment on common or unusual features in the homes you tour, and help you in putting an offer on a house.
“Whether buying or selling a house, you need a Realtor or agent to work for you,” says Warner Quiroga, a Realtor and owner of Brentwood, New York-based Prestige Home Buyers. “They know the market, have excellent negotiating skills, and can help you throughout the process.”
Know the market
Before you decide how to put in an offer on a house, you’ll want to tour open houses and research the market. Learn as much as possible about the character of individual neighborhoods, local transportation, schools, overall safety, parks, and nearby entertainment.
You’ll also want to know what types of homes are selling, and for how much. If demand is high or supply is low, expect homes to sell quickly and possibly above the listed purchase price. You’ll have to be aggressive in making offers and willing to be lenient with contingencies to get an offer accepted.
If demand is low or supply is high, you can take more time to look at your options before deciding. You also can be more aggressive in negotiations, offering lower bids with more contingencies.
Step 2: Find the Right Home for You
When you’re ready to start shopping, think about which home features are most important to you, such as:
- Location and proximity to services and amenities such as jobs, transportation, shopping, and entertainment.
- Number of bedrooms and bathrooms.
- Property size.
- Square footage of the home.
- Amenities such as a finished basement, pool, deck, or garage.
Make sure to factor in your budget. You can work with your agent to look for affordable homes that meet your needs.
Step 3: Decide How Much To Offer
When deciding how to put an offer on a house, figuring out the offer price is one of the most difficult parts of the process. Offer too little, and you could lose the home. Offer too much, and you’ll be paying more than you need to for years to come.
Compare the home you want to buy to recently sold comparable homes to get a sense of how much the house is worth.
Also, consider how long the home has been on the market. The longer it has been for sale, the more likely the sellers are to accept a lower offer.
Your agent can help you research the market and set a competitive offer price, and explain how to submit an offer on a house.
Do I need to offer an earnest money deposit?
Earnest money is like an initial down payment on a home that shows the seller you’re serious about buying their house. You put down the deposit with your offer letter. If the seller accepts your offer and you’re unable to complete the sale as agreed, then the seller keeps the deposit. If the deal closes, then the deposit is applied to your down payment.
While an earnest money deposit isn’t required, it can give you an edge if the bidding is competitive.
Using an escalation clause
An escalation clause automatically increases your offer if the seller receives a higher competing offer.
For example, let’s say you offer $250,000 with an escalation clause that raises your offer by $1,000 over any competing bids, up to a maximum of $275,000. If no higher bid comes in, then you can buy the home for $250,000. If the seller gets an offer for $260,000, then your escalation clause increases your offer to $261,000. If the seller gets an offer for $280,000, then you would have to make a new offer on the home or pass on it.
These clauses can make your offer more competitive and streamline the bidding process. However, they can be risky because you give up some negotiating power.
Step 4: Decide Which Contingencies You Need
Your offer should include contingencies, which are conditions that must be met to close the sale. Contingencies can be a drawback in competitive markets, but in slower markets they preserve your ability to walk away from the sale if anything goes wrong.
Here are common contingencies included in offers:
- Financing contingency. A financing contingency lets you cancel a purchase if you fail to secure sufficient financing to buy the home.
- Appraisal contingency. Lenders typically require a home appraisal so they can be sure the home is worth enough money to secure the loan. If something hurts the home appraisal, and it comes in lower than expected, then this contingency allows you to cancel the deal.
- Inspection contingency. Before you close on a home, you should get a home inspection to evaluate its condition, identify any structural or functional problems, and provide an estimate of any repair costs. If major problems are found and you can’t negotiate concessions from the seller, then this contingency lets you walk away.
- Title contingency. Title contingencies let the buyer back out of a sale if the seller doesn’t have clear ownership of the home and the right to sell it.
- Sale of current home contingency. If you need to sell your current home to pay for the new one, you can make your offer contingent on selling your home by a specific date. This contingency lets you cancel the purchase of your new home if you can’t sell your current one in the specified time frame.
- Timeline contingency. Also known as a settlement contingency, this specifies how long it will take to close on the house. If the seller drags their feet or is trying to find somewhere to move to and can’t close the deal by the deadline, then you can cancel the sale.
Pros and cons of waiving contingencies
When housing markets are competitive, many buyers are tempted to waive contingencies to streamline the process and strengthen their offer to appeal more to sellers. But this comes with significant risks. If problems arise after you waive contingencies, you’re still bound to the deal and subject to potentially large financial losses.
Pros of waiving contingencies include:
- Your offer will be more competitive.
- You could buy the home for a lower price.
- You might streamline the buying process.
Cons of waiving contingencies include:
- You may need to pay for expensive repairs out of pocket if major problems are found with the home.
- Without a financing contingency, you’ll be on the hook for the purchase even if you can’t get a loan.
- If the title isn’t clear, someone else might try to assert ownership of the home.
Step 5: Write and Submit Your Offer
Once you know how much you want to offer and which contingencies to include, you’re ready to proceed with making a house offer. Your real estate agent should be able to help you with this, and typically submits your offer directly to the seller or to their agent.
What must be included in your offer?
Your offer should include:
- The address of the property.
- The price you’re offering.
- Any terms, such as whether you’re paying cash or getting a loan, as well as contingencies.
- Your desired timeline for closing.
- Whether you’re offering earnest money and the amount.
- How to split costs like real estate taxes, fuel, utilities, and the like through closing.
- Who covers title insurance and other costs.
- An expiration date.
The precise requirements may vary from state to state, so consult your agent, Realtor, or attorney to work out the details.
Sample purchase offer
A purchase offer will look something like this:
Offer To Purchase Real Estate
Property address _______________
___________ (The Buyers) hereby offer to buy said property, which has been offered by ___________ (The Broker) under the following terms and conditions:
I will pay $__________, of which
$___________ is paid as a deposit to bind this offer,
$___________ is to be paid as an additional deposit upon the execution of the purchase and sale agreement,
$___________ is to be paid at the time of the delivery of the deed.
This offer is good until __________ (expiration time and date).
The parties shall on or before __________ (time and date) execute the applicable standard form purchase and sale agreement.
A good and sufficient deed, conveying a good and clear record and marketable title, shall be delivered at noon on __________ (date) at the appropriate registry of deeds.
If I do not fulfill my obligations under this offer, the above-mentioned deposit will become your property. Said deposit will be held by ___________ as escrow agent subject to the terms provided.
Contingencies included in this offer are ________________________.
Buyer’s signature _________________
Buyer’s address __________________
Again, it’s a good idea to consult your agent, Realtor, or attorney to draft a complete and binding purchase offer before submitting it to a seller.
Should a lawyer look at your offer?
Having an attorney look at your offer can be a good thing, especially if you’re including some complicated contingencies. They can review your offer to ensure it enforces your desired contingencies and is legally binding.
Tips for making your offer stand out
In a hot market, it can be hard to win a home, especially if there are multiple offers. Some tips for making your offer stand out are:
- Make an all-cash offer rather than one contingent on financing.
- Remove as many contingencies as you’re comfortable dropping.
- Add an escalation clause.
- Be flexible with the timing of closing.
Should I include a house offer letter?
You may be tempted to send a house offer letter introducing yourself and discussing your interest in the home. It can feel like a good way to connect with the seller and boost your chances of getting the home.
However, it’s often not a good idea. The practice is controversial and even banned in some areas because it could violate fair housing laws. Some sellers will refuse to read offer letters.
Step 6: Negotiate the Deal
After you’ve submitted your offer, be ready for the seller to come back with a counteroffer or to ask you to increase your bid, especially if they received multiple offers. Be prepared to negotiate details like the price of the home, the closing date, and contingencies.
The seller also may reject your offer, which means you need to keep looking for a home.
Step 7: Sign the Purchase Agreement
Once you and the seller settle on the terms of the transaction, it’s time to sign the purchase agreement. This is a legally binding document that outlines every detail of the sale, including the price, the contingencies, and the timeline.
At this point, it’s important to have a lawyer review the agreement to ensure that it’s complete, accurate, and binding.
FAQ: How To Make an Offer on a House
Before you get started with the purchase process, it’s important to understand how to make a house offer.
If you back out of buying a home after signing a purchase agreement for a reason not covered by a contingency, you could lose the money you spent on the transaction, such as inspection fees. You’ll also surrender any earnest money you provided to the seller. In some cases, the seller could sue you for damages.
You can back out without penalties before your offer is accepted and an agreement is signed.
Sellers can back out of a sale after accepting an offer, especially if the sale meets a contingency that allows them to do so. Failing that, a seller attempting to back out may face serious consequences. The buyer could sue to force the sale to go through or demand payment to recoup the money spent on the purchase process, plus damages.
The Bottom Line on How To Make an Offer on a House
Buying a home is a long process with many steps, but few are as important as knowing how to make an offer on a house. While there are no guarantees for success, knowing the process and being prepared to act can help you make a successful offer on an affordable home that meets your needs.