How to Make an Offer on a House
Apr 4, 2023
Ready to take the plunge into homeownership? We've all been there... you're on the fence thinking if it's better to rent or buy and then suddenly you get the bug to buy and can't stop opening the Zillow app.
Buying a home is one of the most rewarding experiences - giving you a true sense of ownership and allowing you to build equity instead of giving your landlord your rent money!
How to Make an Offer on a House
Buying a house can also be an intimidating process, especially if you’ve never done it before. But don't worry, making an offer on a house is a lot simpler than you might think. In this article, we'll give you our pro tips on how to make an offer on a house and how to get your offer accepted.
Step 1: Choose a competitive offer price
Once you find a house that you love in your price range, you'll need to determine your offer price. You'll want to make an offer that is reasonable, but you also don't want to overpay. Pay close attention the number of "days on market." If the home only been on the market for 1-3 days, you'll have to be more aggressive with your offer.
One way to determine your offer price is to look at comparable homes in the area that have recently sold. Your real estate agent can help you with this. If there are multiple offers on a property, you'll likely have to offer over asking price - in which case, the comps become irrelevant unfortunately.
-> Pro tip: in 2022, houses sold for 98% on average nationally. In hot markets, houses sold for 101% of asking price.
Step 2: Provide earnest money of at least 1%
The last thing you want to do is make a great offer, but skimp on the earnest money deposit. Earnest money is a good faith deposit and is typically 1% of the home price. But keep in mind that more is better! An earnest money deposit of 2-3% can offset of low offer or help you stand out among other buyers.
Earnest money is refundable if you back out, but you'll still have to write a check (or send a wire). So, you'll need the cash available once you write the offer. Typically, you'll deliver earnest money to the broker, attorney or title company within 3-7 days of a binding agreement if your offer is accepted.
Step 3: Use contingencies in your offer
When making an offer on a house, it's important to consider contingencies. Contingencies are conditions that must be met in order for the sale to go through. For example, you may want to make the sale contingent on a home inspection or the appraisal. These are the two most common contingencies. The home inspection contingency is commonly referred to as the due diligence period.
Step 4: Be a savvy negotiator
In a hot market when the seller has more than one offer, it's rare for a seller to accept the first offer that comes in. So, be prepared to negotiate. Remember, negotiation is a give-and-take process, so be willing to compromise. These are the terms that are important in a negotiation:
- Earnest money: generally this needs to be 1% but 2% is even stronger.
- Due diligence (inspection period): make your offer stronger by keeping this short.
- Close date: generally you'll want to close in 30 days but a savvy negotiator will uncover the seller's desired close date and write the offer to reflect this.
- Special stipulations: you'll want to minimize any special stipulation if there are multiple offers, otherwise this could be your chance to ask for special concessions.
- Closing costs: you could ask for a seller contribution, which would offset your closing costs.
Step 5: Write a personal letter
One way to make your offer stand out is to write a personal letter to the seller. In this letter, you can explain why you love the house and why you would be the perfect buyer. This can be a great way to make a personal connection with the seller and increase your chances of getting your offer accepted. Keep in mind that personal letters are not allowed in some states due to discrimination laws.
Step 6: Make a wise counteroffer
Inevitably, the seller will counter one or more of the terms of your offer. Keep in mind that they may counter something other than the price. It is very common for sellers to counter the closing date, the financing contingency, earnest money amount or special stipulations.
This is when you can make a "best and final" offer or express an interest to "meet in the middle" on a given term. It's also a great opportunity to ask for a seller concession, which is a monetary contribution towards your closing costs.
Final Tips for Making an Offer on a Home
The process of buying a house can be lengthy, and it's not uncommon for there to be some bumps along the way. But if you're patient, you'll eventually find the perfect home. In a hot seller's market, you might need to compromise on a few things - whether that be location, price, condition or size of the home.
Once you begin house-hunting, you'll want to speak to a loan officer or get pre-approved for a mortgage. You don't necessarily need to pull your credit, you simply need to determine how much house you can afford. If the asking price for your dream home is $400,000 but you're only pre-qualified up to $380,000, it might be best to keep shopping.
Making an offer on a house doesn't have to be intimidating. By getting pre-approved for a mortgage, determining your offer price, considering contingencies, and negotiating key terms, you'll be well on your way to becoming a homeowner. Happy house hunting!