How to Make an Offer on a Home

Own a Home Article

Summary: Knowing the steps to make a home offer and how to produce a competitive one is beneficial for first-time home buyers and veteran homeowners. We have broken down the lengthy homebuying process and simplified it by focusing on the steps leading to the home offer.

Being in the market to buy a house is an exciting experience. Finding the house you want to call yours, to putting in an offer, every moment is full of delight (and some occasional nerves).

Knowing the process of making a home offer and how to produce a competitive bid is beneficial for first-time home buyers and veteran homeowners.

Step 1: Get Pre-Approved

A pre-approval spells out the loan amount, type, and terms available to the borrower. In addition to verifying the price range and acting as a map with home shopping, the letter also solidifies a seller’s confidence in the borrower’s ability to purchase the home. Many sellers only consider an offer from borrowers who have a pre-approval letter.

Step 2: Find a Realtor

Your realtor is not only a guide but also your advocate when it comes to making an offer on a home. Realtors offer knowledgeable advice on the housing market’s condition. They will scout potential homes that meet your personal and financial needs as well as research data, pricing strategy, listing agent’s history, and all information on the home sale to help leverage your offer. However, more importantly, they will walk you through the negotiation process with the seller’s agent.

Step 3: Shop for a Home

Schedule tours and attend open houses with your realtor. Once you have picked a home to make an offer on, keep the following in mind.

  • How long has the home been on the market?
    • There may be less competition if the home has been on the market for a month or two.
  • How long has the current owner lived in the home?
    • Long-term homeowners may be attached to the home and be selective of buyers or less likely to accept low offers.
  • Is the homeowner looking for a quick closing?
    • Adjusting your offer letter to accommodate a quick close may help the seller in choosing your offer.
  • Has the home been renovated or expanded?
    • If so, check with your city to make sure everything is up to code.
  • What is the neighborhood like?
    • Just as much as you like the home, it is equally important to like the neighborhood.
    • Ask your realtor to help you find data on the neighborhood such as school ratings, crime rates, development, and more.

Step 4: Decide How Much to Offer

There are a few things to keep in mind before you buy a house or apply for a mortgage.

  • Home condition
    • The offer amount may be impacted if the home needs any repairs or changes.
  • Market condition
    • Ask your realtor to gather sales data on other home sales within the area. This information can be a reference point for what you should offer.
  • Your budget
    • The most important deciding factor is your budget. Make sure the offer you provide is a monthly amount you can afford.
  • Have some wiggle room
    • Do not use your entire pre-approval amount. Have some wiggle room if the seller counteroffers. If you find yourself making a counteroffer, make sure the amount is within your budget.

Step 5: Decide on Contingencies

Contingencies are clauses a buyer has in the offer letter to protect themselves in case they wish to withdraw from the sale.

Common contingencies:

  • Home inspection
  • Appraisal
  • Financing
    • The buyers can withdraw from the home sale if they are unable to get a housing loan.
  • Home sale
    • Buyers/borrowers agree to purchase the seller’s home only after their home has been sold.
  • Title
    • Buyers can withdraw if there are issues with the home’s title.

Waiving a few contingencies can make your offer more attractive, but there are risks. Consult your mortgage lender and realtor before negotiating contingencies.

Step 6: Earnest Money

Earnest money is a payment to show your seriousness towards the home purchase. The funds are put in an escrow account typically held by the title company of the seller’s agent. If the borrower fails to go through with the home sale and is not connected to a contingency, the earnest money will go to the seller. If the home sale is a success, the earnest money goes toward the down payment and closing costs.

The amount is usually 1% to 2% of the home price. The larger the amount, the more attractive your offer because sellers see you have the funds to purchase the home.

Step 7: Write an Offer

Offer letters need the following information:

  • Name of seller
  • The address of the property being sold
  • Your name and the name of anyone that will be on the title
  • The offer amount
  • Earnest money
  • Any contingencies the home needs to meet before the sale goes through
  • Any concessions you’re asking from the seller (closing cost coverage or repairs)
  • List of fees and closing costs
  • Items you want included in the sale (appliances or lighting fixtures)
  • Pre-Approval letter
  • The date you’d like to close on your loan
  • Your preferred move in date
  • The deadline to respond to your offer

In addition to the standard information above, keep these tips in mind too.

  • Offer the full asking price
    • Offering below the asking amount depends on the housing market, how long the home has been on the market, and any marketing data that supports your low offer.
    • Offering above the asking amount also depends on the housing market.
  • Escalation clause
    • An escalation clause allows the borrower to buy a house and pay a specific amount over the seller’s next highest offer.
    • For example:
      • A home is being sold for $250,000. You submit an offer for $250,000 with an escalation clause that states you will pay $2,000 more than the highest bidder up to the maximum offer of $270,000.
      • If an offer for $255,000 is placed, you will automatically offer $257,000 to secure the home.
  • Keep your emotions grounded
    • It is better to be prepared to walk away than to overpay.

Step 8: Reject, Negotiate, or Accept

The seller may reject your offer for being too low, bidding wars, not having specific terms they wanted, or having certain financing preference.

If the seller counteroffers, you can take three actions.

  • Accept the offer as-is
  • Make a counteroffer
  • Decline and continue home searching

If the seller accepts the offer, congratulations!

Step 9: Sign the Purchase and Sale Contract

The purchase and sale agreement are a legally binding contract between the seller and borrower that outlines the terms of the real estate transaction.

The agreement typically includes the following information

  • The buyer’s information
  • The seller’s information
  • Details about the property
  • The agreed-upon price
  • The financing for the housing loan
  • Fixtures and/or appliances included in the sale
  • Total earnest money deposit
  • Closing costs and the party paying for them
  • Any contingencies that must be met for the sale to proceed

You will send the agreement to your mortgage lender. Your mortgage lender will then schedule your appraisal and start your home loan application.

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