Making an offer is one of the most important steps in the homebuying process. It’s the point where you find out if the home will be yours or not. From deciding how much to offer to choosing contingencies and earnest money, and preparing for negotiations, there’s a lot to consider.
In this Redfin article, we’ll outline how to make an offer on a house in six steps. Whether you’re buying a home in Minneapolis, MN, or a townhouse in Austin, TX, here’s what you need to know about making an offer on a home so you have the best chance of getting it accepted.
6 steps to make an offer on a house
1: Decide on how much to offer
2: Choose your contingencies
3: Decide on earnest money amount
4: Write up the offer letter
5: Submit your offer and wait
6: Negotiate the terms of the sale
What to do before making an offer
Before making an offer on a home, there are a few things you should do that can help make the process smoother. Let’s explore them.
Get a mortgage pre-approval
A pre-approval letter tells you how much a lender will loan you to buy a home. Most sellers won’t take an offer seriously without pre-approval, so having one ready lets you move fast when you find a home.
Keep in mind that a pre-approval is different from a pre-qualification. A pre-approval is the more serious of the two, as a lender examines your finances to decide how much to lend. A pre-qualification only uses the information you provide.
Learn about the local housing market
If homes are selling quickly and above the list price, you’re likely in a competitive market. You could end up competing with other buyers or get drawn into a bidding war on a home. Knowing the market can help you decide what price to offer. Look up housing trends in your area and ask your real estate agent for their expertise.
Get insight from your agent
Your real estate agent may also know information about why the sellers are selling their home. If the sellers are in a hurry to sell, you may be able to submit a slightly lower offer. However, if the sellers aren’t in a rush, they may be more likely to wait for a higher offer.
Understand the basics of an offer
Your real estate agent will put together your offer using a standard template that includes all the key details:
- Your offer price
- Your down payment amount
- The amount of earnest money you’ll deposit
- A copy of your pre-approval letter
- Any contingencies you want to include
- A breakdown of the closing costs and who will pay each one
- When you hope to close (i.e., complete the purchase)
- The offer’s expiration date
We’ll cover some of these, but your agent should be able to walk you through them all and help you decide how to make an offer that works for you.
How to make an offer on a home
Once you’ve learned what to do before making an offer on a house, you can move on to the steps of making an offer.
Step 1: Decide on how much to offer
If you’ve already been pre-approved, you probably have a good idea how much you can afford to spend on a home. But the price you decide to offer will depend on many factors – the competitiveness of the housing market, the home itself, your budget, and more.
Housing market conditions:
- Buyer’s market: More homes for sale than buyers – you may have the opportunity to offer lower than the home’s listing price.
- Seller’s market: Fewer homes for sale than buyers – you may need to offer above the listing price to stand out above the competition.
Budget: Your budget is often the biggest factor in determining how much to offer on a house. Even if you’re approved for a larger mortgage, that doesn’t mean you should buy more than you can afford. Consider offering less than your mortgage amount to leave room for negotiation.
The home: There are circumstances where it makes sense to offer an amount above or below the list price, and others where you should meet the list price. Your agent can help you determine the right offer for you. Some factors include:
- Time on the market: The longer the home has been on the market, the more likely the seller is to consider a lower offer.
- Necessary repairs: If the property needs lots of repairs or is turnkey, it can affect how much you offer.
- Comparable homes in the area: Your real estate agent can pull comparable homes, also called “comps,” which are similar homes for sale or recently sold in the area. This gives insight as to whether the home is fairly priced.
- Competition: Competition for a home can highly influence your offer. Talk with your agent about handling a bidding war or making a backup offer if the seller has already accepted one.
Step 2: Choose your contingency clauses
Contingencies protect you as the buyer by giving you a way to back out of the deal if certain conditions are not met. When you use a contingency to cancel the deal, you can usually recover your earnest money.
Sellers prefer offers without contingencies, so use them sparingly if you can. The contingencies available depend on your location and the current housing market, but here are the most common ones:
- Financing contingency
- Appraisal contingency
- Inspection contingency
- Home sale contingency
- Title contingency
- Attorney review contingency (in some states)
Step 3: Decide on the earnest money amount
The third step is deciding how much to offer in earnest money. Earnest money is a deposit, usually 1-3% of the home’s sales price, that you pay after your offer is accepted. It shows that you’re committed to purchasing the home.
If the sale goes through, it’s applied to closing costs. If you back out of the sale due to a reason covered in your contract, such as a contingency that isn’t met, earnest money will be refunded to you. The seller keeps the earnest money if you withdraw from the sale for another reason.
Step 4: Write up the offer letter
This refers to the legal offer document, not a personal letter to the seller. Personal letters to sellers are discouraged as they can violate Fair Housing laws.
Your real estate agent will draft up the offer letter for you, but if you’re working without an agent, here’s what you’ll need to include:
- Address of the home you’re offering to buy
- Your name and anyone else’s name that will be on the house title.
- Your offer price
- Any contingencies you want to include
- Any seller concessions you’re asking for, like repairs or closing costs
- Your mortgage pre-approval letter
- Items you want in the sale, such as appliances
- Earnest money deposit amount
- The date you anticipate the loan closing
- The date you expect to move in
- Deadline for the seller to respond to the offer
Step 5: Submit your offer and wait
Once your offer is ready, your real estate agent will submit it on your behalf. If the seller has received other offers or expects to, you may have to wait a few days for an answer.
Step 6: Negotiate the terms of the sale
It’s common to negotiate with the seller, and having an experienced real estate agent is crucial. Discuss ahead of time which aspects of the offer you’re willing to negotiate and which are non-negotiable. Here are three scenarios you may face after submitting your offer.
Scenario 1: The seller accepts your offer
If the seller accepts your offer, then you’ll move on to the next steps. This means signing the purchase and sale agreement, gathering your earnest money, and applying for a mortgage.
Scenario 2: The seller makes a counteroffer
The second option is that the seller makes a counteroffer. It’s up to you and your real estate agent how you’d like to proceed. The negotiations are typically informal and help you come to an agreement – or walk away from the deal.
Here are some things to consider:
- You don’t have to negotiate the purchase price: While it may be that the seller’s counteroffer is a higher purchase price than you offered, that doesn’t mean you have to accept that. You can consider negotiating repair costs or other concessions.
- Learn what the seller is looking for: Your real estate agent will reach out to the sellers and their agent to determine what the sellers are looking for. Do they want you to remove contingencies? Were they looking for a higher price? This information can help you determine what to negotiate.
Scenario 3: The seller rejects your offer
The final scenario is that the seller rejects your offer. Maybe your offer was too low, or there was a cash buyer. If your offer is rejected, then you can begin looking at other homes on the market.
What happens after your offer is accepted?
Congratulations, your offer was accepted. Here’s what you can expect next:
- Sign the contract: Read it carefully, and make sure you understand the details before you sign.
- Secure your mortgage: You’ll need to apply for your home loan. Your lender will conduct a deeper financial review, finalize your loan terms, and order an appraisal to confirm the home’s value.
- Schedule your inspection and appraisal: Be sure to have a home inspection to uncover any issues with the property and arrange a home appraisal.
- Close on your new home: When any contingencies are met and your mortgage is ready, you can sign the paperwork and close on the home. Your lender will transfer your funds to the attorney or title company to finalize your purchase and receive the keys.
FAQs about making an offer
How much should I put down?
How much your down payment is will vary depending on your loan type and budget, but here are some things to consider.
- 0% down – VA or USDA loans
- 3-5% down – FHA and some conventional loans
- 10-20%+ down – Helps avoid private mortgage insurance (PMI) and lowers monthly payments.
What if I’m caught in a bidding war?
A bidding war happens when a seller receives multiple offers in a short amount of time. Because buyers are competing against each other, they may raise their offer price, give up contingencies, or make other “concessions” to make their offers more appealing. Your agent can give you advice to help you avoid bidding wars when possible, and navigate them wisely when you can’t.
How much is too low to offer on a home?
Offering a lower offer on a house than the list price depends on several factors. Your real estate agent will have insight as to what is too low to offer.
How long does it take to close on a home?
Closing on a home with a mortgage can take anywhere from 30 to 60 days. There are things you can do to prevent delays and speed up the closing process.
The post How to Make an Offer on a House in 6 Steps appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.
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