Finding your dream home involves several steps, including making an offer on the house. Knowing whether you're ready to make an offer, how much of an offer you can make and the steps to take can improve your chances of getting your ideal home. This article covers things you need to know about how to make an offer, including valuable tips to help you beat out other offers on your dream home.
What does it mean to make an offer on a house?
When you make an offer on a home, you’re submitting a legally binding document stating how much you'll pay for the house and all other terms and conditions of the home purchase. If the seller accepts your offer, it will be a sales contract that must be honored.
Offers are sometimes referred to as purchase agreements because they include all the terms you and the seller are agreeing to.
A purchase offer should include:
- The type of financing you’re planning to use.
- Your down payment amount
- A list of all closing costs and which parties will pay each
- When your purchase offer will expire
- The earnest money you'll pay for the home (usually 1% of the total home price)
- Information regarding when your current home will be sold, if applicable
- Other relevant items such as appliances included in the sale, a legal description of the property and if you’ve been preapproved for a mortgage.
- Contingencies for important items like having the appraised value be equal to or greater than the sales price and your ability to obtain a mortgage.
Are you ready to make an offer on a house?
When you make an offer on a home, you're submitting a legally binding document that you must adhere to if your offer is accepted. As a result, it's important that you're sure you're ready to make an offer.
Here are a few things to consider when determining if making an offer on a home is the right choice:
- Are you financially able to make the down payment?
- Have you prequalified for a mortgage that is sufficient to finance the home you want to buy?
- Have you done your research on the neighborhood and the surrounding area?
If you answered yes to most or all of these questions, you might be ready to make an offer on a house. If you answered no to multiple questions, consider waiting until you're ready
How much should you offer on a house?
When determining how much you should offer for a home, consider several factors, including:
- What's the current state of the market? If you notice similar houses on the market remain for sale for a month or longer, you're likely in a buyer's market. This is a great time to make an offer on a home because there tend to be more homes for sale than there are buyers. If you're in a buyer's market, consider making an offer price lower than what the seller has the home listed for.
- Is there competition for the house? If a home has multiple offers, you might want to consider making an offer that's slightly higher than the asking price. You can also include an escalation clause that states you will pay up to a certain amount if the seller receives other, higher offers.
- Has the home been for sale for a while? If you're interested in a home that's been on the market for a while, you could make an offer below the asking price. However, if the home has only been on the market for a short period and is priced reasonably, consider offering the asking price.
Your real estate agent can help you decide on the best approach to take.
Before moving forward, be sure you can afford the amount you plan to offer, including any earnest money deposit or down payment.
How to make an offer on a home
Take the following steps when making an offer on a house:
- Make sure you understand the offer process. One of three things typically happens when you make an offer: Your offer is accepted, your offer is declined or you receive a counteroffer. You should understand what each situation means and what you'll do in each.
- Decide how much you'll offer. Do your research and take the time to determine how much you will offer. A real estate agent could assist you with this.
- Establish the offer details and contingencies. Your offer should include any contingencies you expect if the seller accepts the offer. These might include who will pay the closing costs, as well as how soon the appraisal and home inspection will take place once the seller accepts your offer. The more specific you are the better.
- Determine your earnest money deposit. An earnest money deposit is what you will put down to prove you're serious about buying the home. This deposit is typically 1% to 3% of the home's total price. The greater your earnest money deposit, the more attractive your offer will appear to the seller. Understand that your deposit may not be refundable in certain circumstances.
- Get a prequalification letter from your lender. Showing the seller a prequalification letter can further strengthen your offer by demonstrating the likelihood that your lender will approve you for the loan amount.
- Prepare and submit the offer letter. Once you've fine-tuned all the details, you can prepare and submit the offer letter to the seller or the seller's agent. If you aren’t using a realtor, it’s a good idea to have an attorney proofread your offer letter to ensure legal accuracy.
Tips to boost your chances of winning an offer on a home
Here are a few helpful tips to increase your chances of making and winning an offer on a home:
- Consider increasing your down payment. The larger the down payment you're willing to make, the more attractive your offer will look to sellers. If possible, increase how much you'll put down on the home.
- Put an escalation clause in the offer letter. If you are bidding against several potential buyers, consider including an escalation clause in your offer letter. This lets the seller know you're willing to pay a set amount more than your initial offer if need be.
- Avoid too many contingencies. Making as few contingencies as possible can increase your attractiveness to sellers. Things to leave out of the offer letter, if possible, include repair demands, asking the seller to pay your closing costs and requesting the seller to first buy a home warranty.
The more prepared you are when submitting an offer on a home, the more likely you'll be to win that offer. Take the time to prepare an offer, and consider using a real estate agent to ensure your offer is as strong as possible.