@Christin Nguyen
Let’s break down the process of making an offer on your dream house into five simple steps.
Step 1: Decide How Much To Offer
The first step in making an offer on a home is to decide how much money you’re willing to pay for the property. It’s important to stay inside your budget, but you shouldn’t just throw out a random number. You’re looking for that sweet spot between getting the best possible price and not insulting the seller by making a lowball offer. Here are some things to consider before you choose a final price:
Home Considerations
Amount of time the home has been on the market: It’s possible that the seller might be more motivated to move if the home has been on the market for more than 2 or 3 months. Depending on the current market, you may want to consider offering a lower price if you’re looking at a property that’s been for sale for a while.
Comparable homes (comps) in the area: Spend some time online researching comparable properties nearby that are currently for sale. Is the home’s asking price higher than other homes on the market with similar amenities? This is another instance where you may want to consider offering less money.
Necessary repairs and renovations: Does the property need a lot of repairs? Keep the cost of these repairs in mind when you consider your total overall budget. When you prepare your offer, you may also want to ask the seller to make the repairs or other concessions.
Competition for the home: Consider the amount of competition for your dream home before deciding how much to offer. Bidding wars might seem intimidating, but you'll have the best shot at winning if you and your agent discuss how much other buyers are offering for the house. If the seller has already accepted another offer on the house, you can use many of these same strategies to consider making a backup offer.
Market Considerations
Real estate agents are particularly useful in assessing the current market and housing costs. Your agent will complete a comparative market analysis, which considers the most recent sales in the area in order to help you assess how the house you are interested in compares to what the others sold for. Be sure to ask questions about recent sales that might not yet have gone to closing, which can help you decide if it’s a seller’s market, a buyer’s market or if it’s transitioning from one to the other.
Budget Considerations
You may have been approved for a startling mortgage amount, but don’t let that dictate how much you offer. Make sure you can live comfortably with the monthly mortgage payment, even if your lender says you can afford more. And don’t offer your entire approval amount, even if you feel you’ll be able to comfortably afford it, because doing so leaves no room for negotiation or the potential for upgrades or repairs.
Don’t know how much to offer? Talk to your real estate agent. They won’t tell you how much to offer, but they will let you know what they think a successful offer looks like.
Step 2: Decide On Contingencies
Contingencies are basically escape clauses in a sales contract that allow buyers to walk away from a sale with their earnest money, which is essentially a type of security deposit. Common contingencies include the home inspection, appraisal, financing, title and – though it’s far less commonly used today – the home sale contingency. If you’re buying a home and can pay cash for it, you will not need to include the financing contingency or the appraisal contingency, which is required by lenders to make sure that the property is worth at least the mortgage amount.
Step 3: Decide On How Much Earnest Money To Offer
Cash is king, and even if you are not buying a home with cash, you’ll have to submit a good faith deposit, which is often referred to as earnest money. The earnest money requirement varies from market to market, but is typically 1 – 2% of the total home price. That said, the more money you offer, the better your offer looks in the eyes of the seller.
This money will be held in an escrow account and later applied to your mortgage down payment. But you’re probably wondering: If the money isn’t going directly into the seller’s pocket, why do larger earnest money payments matter? Because your ability to produce a large amount of cash lets the seller know that you’re a serious buyer and you have the assets to back it up.
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Step 4: Write A House Offer Letter
Now that you’ve come up with an offer amount, it’s time to convey that offer to the seller. If you’re working with a real estate agent, they'll draw up the offer letter for you. If you choose to write your letter on your own, or if you don’t have a real estate agent, make sure you include the following information:
The address of the home you want to buy.
Your name and the name of anyone else who will be on the house title with you, such as a spouse.
The amount of money you want to offer for the home.
Any contingencies the home needs to meet before the sale goes through, such as a successful inspection.
Any concessions you’re asking from the seller, such as covering closing costs or repairs.
Items you want included in the sale, such as window treatments, appliances or lighting fixtures.
The amount of your earnest money deposit.
Your mortgage approval letter so the seller knows you can fund the purchase.
The date you expect to close on your loan.
The date you want to move into the home.
The deadline to respond to your offer.
You or your real estate agent will finalize the offer letter and submit it to the seller or the seller’s agent. Then, all you can do is wait for a positive response.
Step 5: Negotiate The Price And Terms Of The Sale
A seller can do one of three things when they receive your offer: accept it, make a counteroffer or reject it.
The Seller Accepts Your Offer
Did the seller accept your offer? If yes, congratulations! You can proceed to producing the earnest money check and signing the sales contract. Now, you’re ready to move forward with your mortgage lender and begin scheduling the home inspection and appraisal visits.
The Seller Makes A Counteroffer
If the seller responds with a counteroffer, it’s up to you to decide what to do next. Your real estate agent can get in contact with the seller or their agent to get a feel for what the seller hopes to get for their home and whether they’re willing to negotiate with you on price and terms. These negotiations are fairly informal in that they are often simply conversations between the parties and their agents, but they will ultimately form the basis of the purchase contract.
Here are a few tips to keep in mind:
You can negotiate more than just the purchase price of your home. You may be willing to trade concession or repair requests for a lower purchase price. Work with your real estate agent and the seller to see if you can reach an agreement for the home.
Try to find out where the sellers’ pain points are. Do they need to close quickly? Or would they rather push closing out as far as possible while they look for their next home? If you’re flexible, you might be able to solve a problem and make your offer more attractive to the seller at the same time.
Write a home offer letter. Your agent can help you decide whether this is a good strategy in your particular situation. This should be a heartfelt letter from you to the seller that lays out your reasons for wanting to buy their home. If your offer is similar to others that they’re entertaining, and the seller has a strong emotional attachment to the home, your personal plea might just be enough to push your offer to the top of the pile.
The Seller Rejects Your Offer
Sometimes, things just aren’t meant to be. Maybe you lowballed the offer, or maybe the seller isn’t ready to sell. Although a rejection may leave you feeling disappointed, remember that the house you love today may seem like an albatross 5 years from now if you can’t comfortably afford it. Consider the process a learning experience and resume your house hunting. It may be that your true dream house is right around the corner.
The Bottom Line
Always remember that, even after making an offer, you’re free to change your mind and walk away before signing a contract. Don’t worry about wasting anybody’s time or disappointing someone; you’re the one who will be paying for and living in the house, and you need to feel completely comfortable with the terms of that purchase.
Did you make an offer on your dream home and have it accepted by the seller? Learn more about what you can expect during the home closing process before becoming a new homeowner.
All the best!
