How Much to Offer on a House

After visiting open houses and sifting through an endless number of listings, you’ve finally found a home you want to buy. Now comes the next step: making an offer.

Figuring out how much to offer on a house can be a delicate balancing act.

No one wants to pay too much for a home if they don’t have to, but making a low bid could mean losing out on the house altogether. While there are no hard-and-fast rules, here are three things to consider to help tip the odds in favor of getting your offer accepted.

What's your maximum budget?

Setting a maximum budget can help you avoid making an offer on a house you can’t afford.

When you're preapproved for a mortgage, the lender will estimate how much you can borrow to buy a home. But that shouldn’t automatically become the highest amount you plan to spend since your monthly mortgage payment is just one (albeit important) piece of your financial puzzle. Only you can decide how much you want to stretch.

Set your maximum budget by adding up all of your monthly expenses and subtracting that amount from your after-tax income. There’s no rule that says you have to accept the full amount listed in your mortgage preapproval letter, so play around with lower amounts to see what monthly mortgage payment you're most comfortable with. And don’t forget to leave room for unexpected expenses, like emergency home repairs or medical bills.

Before making an offer, make sure you can comfortably handle the monthly mortgage payment and all of your other financial responsibilities.

» MORE: How much house can I afford?

Is it a buyer’s or seller’s market?

After setting your maximum budget, another consideration is tailoring your offer to the type of housing market you’re in. Are homes going above, at or below the asking price and, if so, by how much? Are more buyers paying in cash or offering to waive home inspections? Knowing what the competition is like will help you decide what the property is worth.

Seller’s market

In a seller’s market, demand for homes is high and supply is low. You may have to bid more than the asking price to get your offer accepted.

In this kind of market, it’s tempting to consider exceeding your maximum budget. It’s easy to get caught up in a bidding war and keep raising your offer to end up on top.

Instead, try searching for homes below your maximum budget, leaving you room to bid higher in multiple-offer situations. You can also consider strategies to make an offer attractive to a seller besides paying a higher price.

If you’re working with an agent, they can help you find other ways to make your offer stand out. You can pay in cash, raise your down payment or limit contingencies. You may be able to entice the seller with a rent-back agreement, quick closing or longer escrow period. Also, an escalation clause, which shows you're willing to raise your offer if the seller receives a higher offer, may strengthen your bid.

» MORE: How to compete with cash offers when buying a house

Buyer’s market

In a buyer’s market, the supply of homes is greater than the demand. As a buyer, you have more wiggle room with what you decide to offer.

If the house you want to buy is in line with current market values, offering the listing price may make sense. A buyer’s agent can help you determine a fair and competitive offer by looking at comps, which are recently sold houses that are similar in location, size and features to the one you want to buy.

If the home is overpriced or has been on the market for a long time, you may be able to offer less than the listing price or negotiate contingencies, like having the seller pay for closing costs or repairs.

» MORE: Buying a house this year: What to expect

How much do you want the house?

When deciding how much to offer on a house, one of the final things to consider is how much you love the home.

When a house checks all your boxes — the location, in-law suite, four bedrooms and outdoor workshop, for example — it can be worth it to offer the asking price or above in order to get everything you want.

But what should you do when you find a house that doesn't check all your boxes? Maybe it’s in your desired location and has an in-law suite, but there are only three bedrooms and no outdoor workshop. If the home doesn’t meet all of your needs, you should consider making an offer below your maximum budget or be willing to walk away.

Deciding how much to offer on a house is not one-size-fits-all. Manage the balancing act by taking into account your total budget, the current real estate market and how badly you want the home. The right offer strategy will help you get that much closer to getting the keys to the house.