How To Make An Offer On A House
- Prepare Your Paperwork and Finances
- Determine How Much To Offer
- Decide on Contingencies and Other Terms
- Write the Offer Letter
- Negotiate the Terms and Price
- Finalize and Sign the Contract
1. Prepare Your Paperwork and Finances
Before you can make an offer on a house, you need to make sure your finances are in order. You'll want to calculate how much house you can afford and get a mortgage pre-approval letter from your lender. Without a pre-approval letter or proof of funds (if you're paying all-cash), most sellers won't take your offer seriously.
2. Determine How Much To Offer
Once you find a suitable home, you'll need to calculate its value and determine your offer. Your realtor can help you run a comparative market analysis to estimate how much the home is worth. The CMA report will look at comparable sales to give you a value, but you'll also need to consider your goals and the current real estate market conditions to determine how much you want to offer.
3. Decide on Contingencies and Other Terms
After determining how much you want to offer, you'll need to hammer out the remaining terms of the offer, including any contingencies, and the amount of earnest money you'll pay, if any. You'll also need to provide an estimated timeline for closing.
If you decide to hire a real estate attorney, they will help you through the process and ensure the terms meet your needs.
4. Write the Offer Letter
Once all the information for your offer is ready, it's time to write the offer letter and present it to the seller. The offer letter usually includes a letter stating the following, at a bare minimum:
- Home Address: To make it legal, you need to mention the home address, the seller’s name, and your full legal names. Most offers also contain contact information, too.
- The Price: How much are you willing to pay for the house or apartment? You need to come up with a reasonable price.
- Fees, Down Payments, etc: Who do you want to cover closing costs? What are the fees going to be for your realtor? How much will be put as a down payment?
- Earnest Money: How much of your down payment are you willing to put as earnest money? In most parts of country this will be between 1% and 3% of the purchase price, but it can be as high as 10%.
- Timing: How fast do you want to close the deal? Sellers often want to have a quick sale. When would this offer expire?
- Contingencies: Are there any repairs you consider to be a dealbreaker if they aren’t done prior to you buying the house? What happens if you lose your job? When you make an offer on a house, you get to add contingencies that give you an “out” if the deal isn’t to your liking. Repairs are one of these contingencies.
- Information on the Title Company: Many real estate companies will also request that you have information on a title company or attorney if need be.
5. Negotiate the Terms and Price
Once you’ve put in an offer, you can expect the homeowner to do one of three things: accept, reject, or make a counteroffer. If your offer gets rejected or there’s a counteroffer on the table, you will need to decide if you want to negotiate further or if you prefer to keep searching for other homes.
6. Finalize and Sign the Contract
After the offer has been accepted and all terms have been agreed to, it's time to finalize and sign the contract. It's best to have your attorney review the purchase agreement before you sign it. After you and the seller have signed, you'll receive a copy of the fully executed agreement.
Tips For Making An Offer On A House
There are a lot of little details that go into a good house buying offer, most of which your realtor will be able to explain to you. However, there are some things to keep in mind if you want to make an offer that will get accepted—or if you just want to save a few bucks.
- Don’t panic if you end up in a loop with a bunch of counteroffers. In most real estate areas, it’s normal to get multiple counteroffers on the table before you actually get an agreed-upon offer. This might be annoying, but haggling is just part of the process.
- Try to aim for lower than the original asking price at first. If you are in an area that doesn’t have a very competitive market, your home’s seller could be amenable to getting something below their asking price. In many parts of the NYC tri-state, it’s often better to just work with the asking price, simply because the competition is so high.
- Don’t be afraid to ask your real estate agent for advice. Realtors are professionals who have seen it all, especially if they serve high-demand areas. They will often be able to guide you (or at least nudge you) in the right direction in terms of offers.
- If you are making an offer on a distressed property, expect things to be more complicated. REO properties, foreclosures, and distressed properties are not easy purchases to make for a wide variety of reasons. If you aren’t patient, it may not be worth doing.
- Cash is (usually) king. Cash offers are almost always taken more seriously than those that involve a loan. Even having a higher down payment or a higher amount of earnest money can help move things along.
- But time matters, too. Most sellers wanted their homes off the market yesterday. So, being willing to make an offer that involves a short timeline. As long as the timetable allows for a reasonable time to repair anything you asked to have repaired, it should be good to go.
- It’s okay to appeal to a home owner’s human side. Sometimes just adding a heartfelt letter about who you are, what you do, and why you like their house can be enough to make someone more amenable to selling with you.
- Use an escalation clause. If you really want the house and are worried about a bidding war you should use an escalation clause. This allows you to say that you’ll pay a higher price than the highest bid, up to a specific limit.
What Does An Offer Rejection Mean?
Let’s say that you found your dream home, and you’re ready to move in. Unfortunately, your offer wasn’t met with a counteroffer. It was flat-out rejected. At first glance, you might not know what to do. It’s a harsh way of saying “NO,” isn’t it?
In many cases, a rejection with no counteroffer happens for one of five reasons. These reasons include:
- The price you offered was too high. If you offer a price that’s too high, there’s a chance that the deal will fall apart once it’s appraised. This will mean that you will waste the seller’s time, and they know that. In areas where there’s lower demand, you might want to bid lower.
- Your bid was the lowest or slowest of the bunch. If the deal you’re offering is an outlier when it comes to price or timing, you’re probably going to get a firm rejection.
- They are playing hardball. Hard negotiations might make a seller choose to negotiate with no counteroffer—but with an encouragement to let you make the next move. Act accordingly.
- There’s something intangible here. Sometimes, the answer isn’t entirely clear. Homeowners have the right to say no for almost any reason, so don’t be too upset. There’s always another home.
Making an Offer on a House Bottom Line
If you’re worried that you’ll have to make tons of offers on a house you love or are scared that the offer you have will fall through, take a deep breath. This is just part of the house buying process, and it’s normal to be worried or frustrated. However, it’s all going to be worth it once you move into your new home.