Buying your first home, or your first home in a while, can be daunting. It’s difficult to know where to begin and how to be successful. The current market conditions are hot and buzzwords like “bidding wars” and “seller’s market” can make the process feel impossible.
But making a successful offer on a home is not an insurmountable task. With a little information, some prep work, and a REALTOR® to guide you through the process, you can own the home you are dreaming of.
Here are the ten steps of making an offer on a house to help you navigate the process and achieve your real estate dreams.
1. Find a REALTOR® to Represent You
Before you even go look at houses, it’s important to set a foundation for success by aligning yourself with a great REALTOR® who will represent you and protect your interests throughout the transaction.
By working with a REALTOR®, you will have the guidance and experience of an industry professional who can help you navigate every step of the home buying process. REALTORS® also have access to far more information than the general public, allowing them to help you find exactly what you need much faster.
You should select a REALTOR® who is experienced in the market you are looking in and is easy to communicate with. Don’t be afraid to interview several REALTORS® to find the right one for you.
Tip: Sign a Buyer’s Representation Agreement with your REALTOR® to ensure you that you are able to be fully represented and legally protected as a client.
2. Know Your Financial Options
Another foundational step is to figure out your financing options ahead of time. By solidifying your budget and securing your financing before you even go look at houses, you will be able to submit an offer letter immediately once you find the home you want to buy.
It will also allow you to target your search to only those homes in your price range, eliminating time and energy wasted on homes you cannot afford.
Get a Pre-Approval Letter
Having a pre-approval letter in hand when you make an offer is one of the best ways to strengthen your chances of having that offer accepted.
A pre-approval letter, which differs from a pre-qualification, shows exactly how much a lender is willing to lend you and is verification for the seller that you are capable of paying the amount in your offer letter. It will also tell you how much you can comfortably offer.
In order to get a pre-approval letter, you will need to fill out an application with your lender and provide documentation to verify that information. Your lender will also check your credit score. Some of the most common documentation that a lender will request includes:
* Proof of Income
* Proof of Assets
* Employment Verification
* Drivers License and Social Security Card
Pre-approval letters are usually good for 90 days. Once your offer is accepted, you will still need to complete an appraisal and finalize your loan application.
Decide on Your Budget
Once you know how much you can borrow, you can decide on a budget. It is important to know this ahead of time to avoid falling in love with a house that is out of your price range or ending up with more home than you can actually afford.
When deciding on your budget, it’s important to take other factors into account in addition to the price of the home. Other expenditures to keep in mind include:
* Closing costs (usually 2% - 7% of the cost of the home)
* HOA Fees
* Home Maintenance Fees
* Property Taxes
It is also important to take your initial down payment into account as well as any other living expenses you may have and be realistic about how large of a mortgage payment you can comfortably pay each month.
Tip: If you are buying your first home, look into First Time Home Buyer Programs. There are many options that offer assistance with down payments, less than stellar credit, and benefits for veterans and military personnel.
3. Find a Home You Want to Buy
Once you have your financials figured out, it’s time to find the home you’d like to make an offer on. Start by talking through the essentials with your REALTOR®, including your must-have features and any deal breakers you may have.
It’s important to have a wish list as well, but be honest with yourself about what is really a must-have and what would just be nice to have, as you will most likely have to compromise on some things.
As you walk through a potential home, try to visualize yourself in that space and picture your life there. Don’t forget to take the neighborhood into consideration as well. What is the overall atmosphere there?
Look into drive times to work and school and to necessities like the grocery store. If your beautiful new home is in an inconvenient location, your opinion of it could quickly sour.
Tip: Use your REALTOR® as a resource. Don’t be afraid to ask questions, seek their guidance for recommendations, and allow them to guide you to options you may not have considered that could be a perfect fit.
4. Determine Your Offer Price
Once you have done all your prep work and found the perfect home for you, it’s time to submit an offer. In a high-speed seller’s market, like the one we are experiencing now, it’s important to get your offer in as quickly as possible once you have decided to buy. Start by determining how much you will offer the seller.
It is critical to make an attractive offer to the seller so they do not simply reject your offer outright and move on to another buyer. That does not mean, however, that you always have to make a full-price offer. The current market, condition of the home, and potential competition will all factor into your offer price decision.
Your REALTOR® will be able to help you determine what your offer price should be.
Whether your local market is considered a seller’s market (meaning there are more buyers looking than there are homes available, so buyers are competing for houses) or a buyer’s market (meaning there are more homes available than buyers, so sellers are competing for buyers) will be a big factor in determining how much your offer price should be.
As a buyer in a seller’s market, you will have fewer options and less wiggle room than you would in a buyer’s market simply because there is more competition. In a seller’s market, it is important to offer full price, or as close to full price as you are comfortable with. If you are in a buyer’s market, you can look at other factors, like how long the home has been on the market, to determine an offer price that is potentially lower than the asking price.
Condition of the Home
It is important to budget for repairs when deciding on an offer price. Some repairs can be requested of the seller, but it is possible that they will not agree to any. Make sure that you can afford the repairs and upkeep of the home with your offer price if no seller repairs are made.
If your market is experiencing multiple offer situations on homes, you will need to make your offer as competitive as possible. Bidding wars, as they are sometimes known, can seem intimidating, but don’t be afraid to submit your offer. An experienced REALTOR® will be able to help you navigate the situation with minimal stress and will help you set your expectations appropriately.
Tip: Ask your REALTOR® to do a Comparative Market Analysis (CMA) on the home you are considering to see what other homes in the area are selling for and determine if the offer price you are considering is accurate.
5. Determine Your Earnest Money
Earnest money, sometimes also referred to as a good faith deposit, is a cash deposit to show that your offer is serious. It will be paid into an escrow account and not to the seller directly, and it will go towards closing costs and the down payment on the home once the contract closes.
Earnest money is typically one to five percent of the amount on the offer. As an example, on a $250,000 home, the earnest money due would usually be $2,500 - $12,500.
Tip: A higher earnest money payment will show the seller that you are a serious buyer who is invested in purchasing their home and that you have the finances to do so.
6. Make Decisions on Contingencies
Contingencies are contractual conditions that have to be met in order for the sale to be finalized. As a buyer, you can include contingencies in your offer letter to protect yourself against unforeseen issues.
As with every other part of the offer letter, the market is your key consideration when determining what, if any, contingencies to request. An offer letter with multiple contingencies could seem less attractive to a seller who is considering multiple offers. Contingencies will slow down the contract to close timeline and could result in the sale not closing if they are unable to be met.
You should still include contingencies if you need them, however. Some of the most common contingencies include:
* Appraisal Contingency
* Home Inspection Contingency
* Home Sale Contingency
* Mortgage/Financing Contingency
* Title Contingency
Tip: It is not recommended to forgo a home inspection contingency, no matter what the market conditions. A home inspection contingency will allow you to back out of the contract or renegotiate for repairs if a major issue is discovered during the home inspection.
7. Talk About Timeline
The proposed closing date is another factor that needs to be determined before drafting your offer letter. Typically, a closing date will be 30-45 days from the date the offer has been accepted.
Your REALTOR® will be able to talk to the seller’s REALTOR® to determine what their preferred timeline would be. If, for instance, they need to close quickly, an offer that includes a quick closing date would be more attractive. Make sure to also take into account the time it will take to get your mortgage application approved.
Discuss your options with your REALTOR® and consider both your own needs and the needs of the seller to determine your proposed closing date. If you are including contingencies, you will also need to outline the timing for each of those.
Tip: Schedule your closing mid-week and avoid holidays so that all of the paperwork can be completed and no one feels rushed to finish before businesses close.
8. Write an Offer Letter
Now that you have determined your offer price, contingencies, and timeline, it’s time to draft the offer letter. If you are working with a REALTOR® they will draft and submit the offer letter for you but you will definitely have input into what goes into the letter.
The offer letter should be short and sweet, so it can be easily read. It should start with a greeting and end with a thank you.
An offer letter will include:
* The address of the property you are offering to buy.
* The name of everyone who will be on the title.
* The offer price.
* Any contingencies and concessions you are requesting, as well as any flexibility you have in the terms of the offer.
* A breakdown of closing costs and who would pay them.
* The amount of your earnest money deposit.
* Items in the home you would like included in the sale. Some common items requested include appliances, window treatments and custom fit furniture.
* Your mortgage pre-approval letter and the date you expect to close on your loan.
* You proposed closing date.
* Sometimes, an offer will also include the closing date of your current home, if you are selling.
* The offer expiration date. This is typically 24-48 hours after the offer has been submitted.
Tip: Be sure to use the seller’s name in the greeting (ex, Dear Mr. Cortez) instead of a generic “Dear Seller” to make the letter feel more personal.
9. Negotiate With the Seller
Once your offer has been submitted, you have only to wait for the seller’s decision. They can choose to accept the offer, reject the offer, or submit a counter-offer to you. Some common reasons why a seller would submit a counter offer include:
* Raising the sales price
* Removing concessions or contingencies
* Changing the proposed closing date
If you receive a counteroffer, your options will be the same. You can choose to accept it and move into the contract phase, reject it and look for another house, or continue negotiations with the seller by submitting a counter-offer of your own.
It is important to read all conditions of a counter-offer carefully and weigh your options to determine if what is being offered is amenable to you before accepting.
Tip: If you are in a multiple offer situation, you may find yourself in a bidding war with other buyers. If that is the case, determine what your absolute highest offer will be and stick to it. It can be easy to get caught up in the moment, but it’s important to keep the big picture in mind to avoid buyer’s remorse.
10. Sign the Contract
Once an offer has been accepted by all parties, your REALTOR® will write up the contract with the agreed-upon terms and both you and the seller will sign it. At that point, you will officially be “under contract” on your new home.
Tip: Even though you read through the offer or counter offer, be sure to read through the contract with your REALTOR® before signing it to make sure everything is correct and all conditions, concessions, and contingencies are included as you agreed to them.
Frequently Asked Questions
What Does a Real Estate Offer Contain?
A real estate offer will include your offered sales price, any terms or concessions you’d like to ask for, the proposed closing date, and the amount of earnest money you will provide. It often also includes proof of financing.
Can Anyone Make an Offer on a House?
Anyone can make an offer on any house. It should be noted, however, that once your offer is accepted and you sign the contract, you are legally bound by the terms of that agreement so the offer should be made in earnest. If you choose to break that contract, it could result in loss of earnest money or even litigation.
Should You Offer Over or Under Asking Price?
The answer to this question will depend on current market conditions and the specific situation of the home you are buying.
In a highly competitive market, offering under the asking price could hurt your chances of your offer being accepted. However, if a home is overpriced by an excited seller hoping to take advantage of the seller’s market, it might not appraise for the asking price, leaving you to make up the difference. Talk to your REALTOR® to determine what you are comfortable offering and what is a fair market value.
Is It Worth It to “Low Ball” Your Initial Offer?
Hardball haggling will not yield a “deal” in the real estate industry. Offering $100,000 on a home listed for $200,000 will most likely only offend the seller and they will reject your offer with no further negotiations.
What Should You Save for a Downpayment?
The size of your down payment will depend on the type of loan you have and your credit score, and will typically vary from 3.5% to 20% of the price of the home. There are some loan programs, such as VA loans and USDA loans, that don’t require a down payment at all.
The National Association of REALTORS® 2020 Profile of Home Buyers and Sellers shows that the average down payment last year was just 12%. As an example, on a $250,000 home, a 12% down payment would be $30,000.
Talk to your mortgage lender to discuss your options and determine how much you need to save for a down payment.
What Happens to Your Earnest Money if the Deal Does Not Go Through?
What will happen to the earnest money if the contract falls through will depend on the circumstances.
If you, as the buyer, break the terms of the contract, the earnest money will most likely be kept by the seller. If, however, the contract falls through because the contingencies were not met, or the seller breaks the terms of the contract, then your earnest money will be returned to you.
How Can You Make Your Offer More Attractive?
While it can be easy to think that offering more money is the only way to make an offer attractive, there are other ways to help your offer stand out from the crowd.
Submitting a clean offer, with clear proof of financing, few contingencies, and a tight, well-defined timeline will signal to the seller that you are serious and ready to close.
It can also help to be cognizant of the seller’s needs and accommodate that if possible. For example, if they need time to find a new home, offer a lease back option to them so they can continue living in their home for a time after they have sold it to you.
Should You Include a “Love Letter” to the Seller?
It used to be common practice to encourage including a “love letter” to the seller with your offer, telling them all about you and what you envision for your life in their home. They have come under fire recently, however, due to their potential violation of the Fair Housing Act as sellers could potentially discriminate against or favor one buyer over another due to race, gender, religion, or other factors.
Because of this, many REALTORS® will refuse, on ethical grounds, to deliver a love letter with your submitted offer, or to accept one as part of an offer if they represent the seller.
Rather than appealing to a seller’s emotions and tugging at their heartstrings, it is much better to present a strong, attractive offer that they can objectively evaluate.
Submitting an offer is an exciting and nerve-racking process, but a little preparation can go a long way in ensuring your success. Find a great REALTOR® to work with and do your financial prep work. Then, let your REALTOR® guide you through each step of the offer process, and put their excellent negotiation skills to work for you.
For more great information on the home buying process, be sure to check out Buying a House in 2021: 25+ Things You Need to Know and Your Home Buying Checklist: 12 Things You’ll Need to Do.
If you are ready to buy a home or have questions about the home buying process, we would love to assist you. Visit us at homecity.com to get started today.