Purchasing your first home is a big move. For some, it represents the independence they’ve been striving for, while others see their home purchase as a path to financial security and a way to create a safe haven for their family.
As a homebuyer, you have choices about how you approach the transaction. You can go it alone, without representation, or you can have a real estate agent assist you through the homebuying process. During your search, you may also find houses for sale by the owner (FSBO) or many more listed with a real estate brokerage. Either way, you’ll eventually find the perfect home and you’ll want to make a competitive offer. Here’s how to make an offer on a house that could actually win the deal.
Before you make an offer on a house
There are steps you need to take even before you start your home search to be in the right position to make an offer on a house.
First, you’ll need a lender’s pre-approval for a mortgage to know the price range you can afford on a house. Though you can get an initial idea of how much you can afford by using an online mortgage calculator, a pre-approval letter from a lender will let you know how much a bank will actually lend you, and a best practice for any homebuyer who wants a seller to take them seriously.
Second, take some time to understand the local housing market. You don’t want to get drawn into a bidding war if you can avoid it. When you know the price range that homes are selling for, you’ll be able to dial in your offer when the right house hits the market. With this information in hand, you’ll be set to start looking for your dream home, and a real estate agent’s expertise can be very insightful at this point.
As you search for homes, you should try to understand the seller’s motivation if possible. A real estate agent has developed good strategies to learn more about what might be going on with a seller, so try and find out why they are selling and how quickly they’re looking to move. Knowing if a home seller isn’t in a rush to sell can better inform your strategy when you go to make an offer.
You’ll also want to ask about any repairs completed recently. Local assessments may come due for road repairs, sidewalks, sewage or other city improvements, and any other potential issues with the property. This information is a standard requirement for a real estate agent’s listing agreement. If the seller is selling FSBO, they should provide the same information.
The home offer process
There is as much art as there is math in putting together an offer on a house. The seller has three possible responses to your offer: accept it, counter it, or reject it outright. When the seller accepts or rejects your offer, you have a final answer and can move on to the next step by either proceeding with the purchase of the home or moving on to look at other houses listed for sale. However, when the seller makes a counteroffer, this is when a negotiation between you and the home seller takes place.
When learning how to make an offer on a house, you also need to know what an offer must include so that both you and the seller have appropriate protection during the course of the transaction.
Cover your bases to make a strong offer
If a real estate agent represents you, they’ll submit the offer on your behalf and will follow a standard offer template that includes all the key points. If you are making home offers on your own, you will want to put together a very specific offer letter.
An offer letter should include a few specific items regarding how you’re financing the home and the expected timeframe in which you hope to close. Your offer letter should include:
- your down payment amount
- the amount of earnest money you’re putting down (usually between 1% and 3% of the sale price of the house)
- a copy of your pre-approval letter from your lender
- it should also show a breakdown of the closing costs and who is responsible for paying each one
- and the offer’s expiration date
You may also have contingencies on your offer that you need to specify in the offer letter as well. Contingencies give you a way to back out of your offer if certain conditions are not met. It should come as no surprise that sellers prefer offers without contingencies, so use them sparingly, but include some necessary ones to protect yourself.
The four main offer contingencies
- Appraisal: The lender’s appraiser must agree that the house’s value is equal to or greater than the sales price. Lenders can refuse to lend if the property appraises for less than the loan amount.
- Home inspection: A home inspection will provide a report about the condition and safety of the home at that point in time, plus any repairs that should be made. Should that report reveal major unforeseen issues with the home, you can reconsider your offer.
- Financing: The lender will go through the final approval process to ensure nothing in the buyer’s finances have changed before approving your mortgage loan.
- Selling a house: If you need to sell your current home before purchasing the new house, you’ll need to add this contingency as well.
Optional contingencies you can consider adding to your offer:
- Clear title: As the homebuyer, this provision gives you the option to walk away if there are any problems with the title, such as judgments or liens against the property, rather than moving forward and taking on any contested ownership claims.
- Insurance: You should apply for property insurance as soon as you make the offer. If for any reason you can’t get insurance, you can walk away. For example, any previous claims for an old roof or mold can make a house difficult to insure.
- Final walkthrough: It’s common practice to take a final walkthrough the day before closing. Be sure to bring a final walk through checklist to check on any repairs that were supposed to be completed and ensure there is no major damage from the move-out process. If anything about the property has materially changed, you can back out of the deal or negotiate to have it fixed.
- Attorney review: You may want your attorney to review the contract before closing on the home. The attorney can make sure nothing has been removed or added to the contract without your knowledge.
The offer you make should be competitive for market conditions. This is where your market research comes into play, as well as your pre-approved loan amount. There are circumstances where it can make sense to offer an amount above or below asking price, and others where you should meet asking price. Do your research and learn more about how much to offer on a house for your market’s conditions.
When you make your offer, it can also be a nice touch to include a letter to the home seller on why you’d like to buy and what purchasing the home means to you. This will help you stand out from other buyers in a competitive market.
Depending on how the seller responds to your offer, you may have some negotiating to do. If you are working with a real estate agent, their expertise will be invaluable to effective negotiation. It’s important to know what points in your offer you are willing to bend on and which are non-negotiable. Approach this dialogue with the seller with a respectful and cordial attitude. Just remember that they want to sell and you want to buy, but there may need to be some give and take from each of you to reach an amicable agreement.
Home inspection and attorney review
Once the seller accepts the offer, you’ll want to schedule the home inspection, home appraisal, and have an attorney review your final contract. These steps protect both parties from major issues with the house. They also protect the lender from approving a bad mortgage.
The attorney will have your best interests in mind as a buyer and help you understand all you have agreed to and the seller’s responsibilities before closing. Your attorney’s review could close the deal for you.
Closing on a home
As part of the closing process, the title company will review all the public records for the property. They will double-check that all past taxes, utilities, and any liens against the house have been paid. If not, they will document outstanding items to settle before closing to ensure the property deed can change ownership.
When all the contingencies have been met and financing is ready, the closing can proceed. Your lender will transfer your funds to the attorney or your title company to finalize the house’s purchase.
When a real estate agent can help
You can navigate the entire purchase process on your own, or have a real estate agent assist you during your homebuying journey. There is no legal requirement to work with a real estate agent to purchase a home. However, a real estate agent’s expertise can certainly help you at any point in the homebuying process. Perhaps most importantly, for your own peace of mind through what can be a stressful process, they understand how to make an offer on a house that is competitive and likely to be accepted.