How to Make an Offer on a House in 7 Steps
Work with your agent to submit a written offer based on local market value, specifying how and when the steps in the purchase will happen.
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Ready to make an offer on a house? Finding “the one” can be exhilarating — and maybe a little scary.
After all, once it's signed, the offer becomes a legally binding agreement that includes numerous details, and this is one time when you have to sweat the small stuff. Your real estate agent will guide you through the process, and you may also want to consult a real estate attorney.
Here are the steps you'll encounter.
1. Make sure your financing and cash are all set
Unless you're paying entirely with cash, you'll need a mortgage preapproval from at least one lender before making an offer. (Ideally, you got preapproved before you started house hunting.) A preapproval lets you know how much you're qualified to borrow, which affects how much house you can afford. And it lets the seller know you have the financial wherewithal to make the purchase.
If you're preapproved for a lot more than the purchase price, find out whether your lender will let you generate a customized preapproval letter for an amount less than what you could borrow. This gives you the freedom to show that you've lined up solid financing without divulging your maximum and possibly triggering a higher counteroffer from the seller. Ask your real estate agent for guidance with this.
In addition, verify that the cash you'll need for the down payment, earnest money deposit and closing costs is in a checking or savings account and ready to go. Having direct and immediate access to the cash is essential.
If you need to sell investments or transfer cash between banks, brokerages or even family members’ accounts, make sure you allow time for the transfers to settle before you need the money.
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2. Determine how your buyer’s agent gets paid
Starting August 17, new rules are at play following the settlement of an antitrust lawsuit with the National Association of Realtors (NAR). If you’re working with a real estate agent, you’ll need to sign a contract with them before making an offer on a home. This might be called a buyer representation agreement, buyer agency agreement or buyer-broker agreement.
The contract will set the terms of how your agent gets paid. Historically, the seller paid both agents’ commissions by splitting 5-6% of the home sale price. Now, more options exist: For example, your buyer’s agent might charge a flat fee or an hourly rate instead. When making an offer, you can negotiate who — the buyer or seller — foots the bill for the buyer’s agent.
3. Set an offer price
Your real estate agent can help pinpoint a competitive dollar amount. Whether that's above or below the list price will depend on the market — are there more buyers than sellers? — and on the condition and history of the house.
You can learn more by delving into the comparative market analysis your agent provides and by looking at recent listings and comparable sales.
A seller's market puts more pressure on buyers to offer over the list price. But every property is unique. There may be room to negotiate for homes that need some TLC and have been listed for a while. Your agent will know how long the home has been on the market and can advise you accordingly.
Your budget is another key factor. No matter how competitive the market is, it's never a good idea to offer more than you can afford.
4. Decide how much earnest money to offer
Earnest money is a good-faith deposit to show a seller you're committed to buying the home. The money is usually put in an escrow account after the seller accepts your offer and then can be applied toward your down payment at closing. If you walk away from the deal for a reason that's not spelled out in the offer, the seller can keep the earnest money. If the deal collapses because of something the seller does (such as dropping you in favor of a higher offer after signing the purchase agreement), the deposit should be returned to you.
A typical earnest money deposit is 1% to 3% of the home price. Offering to put down more can help you get a seller's attention, and many buyers do that in hot markets. Your real estate agent can tell you what a seller might reasonably expect.
5. Choose the contingencies to include
Contingencies are clauses in the offer that specify circumstances under which you can walk away from the deal without forfeiting your earnest money.
Common contingencies include:
Final loan approval: This contingency gives you a legal out if your mortgage doesn't get approved within a certain timeframe.
Home inspection: In addition to requiring that the property undergo a home inspection, this contingency may also specify how issues revealed during the inspection will be addressed. For example, the contingency could allow the buyer to walk away from the deal, renegotiate the price or ask the seller to do repairs.
Appraisal: Lenders generally insist on verifying the home's value via an appraisal so they don't lend you more than the property is worth. This contingency lets you back out of the deal if the appraisal comes in lower than a certain amount, jeopardizing your financing.
» MORE: How to make a contingent offer
Your agent should walk you through each type of contingency, recommend which ones to include and explain the risks of waiving any of them.
Although you have to protect your interests and gather enough information to make a wise purchase, contingencies may act as roadblocks to getting a deal done — especially in hot markets. It’s best for the buyer and the seller to put only enough stipulations in the contract to cover the necessities.
Treasury Bills or HYSA: Which grows your down payment faster?
With yields that beat most high-yield savings accounts, the Atomic Treasury account can offer a smarter way to save. Plus, earned interest is exempt from state and local taxes.
6. Write a purchase offer
Usually, a buyer's real estate agent will write the offer, using a residential purchase agreement that complies with applicable state and local laws. That agreement is then customized to suit the buyer's needs. Once the buyer and seller sign the agreement, it's a legally binding contract.
Some states require a real estate lawyer to handle certain parts of the contract and closing process. But even if it’s not mandated, hiring an attorney can be worth the extra cost if the transaction is especially complex and sparks legal questions.
A purchase agreement generally contains these elements, among others:
Address: The home's legal address.
Price: Details regarding the purchase price.
Earnest money: The amount and terms regarding the earnest money, including its disposition upon the acceptance of the offer.
Date and time of the offer’s expiration: The deadline when the offer expires, which can be mere hours in hot markets but in most cases is one or two days.
Fixtures and personal property: Items that the purchase includes. Standard items include built-in systems, such as electrical, plumbing and heating fixtures. Other items can be added, such as a refrigerator, washer or dryer.
Opening of escrow: The name of the title or escrow company and escrow officer.
Title: A stipulation that the seller will provide clear title to the property.
Contingencies: Walk-away clauses that protect the buyer’s interests.
Seller disclosures: Details about the information sellers must provide and when they must deliver the disclosures to you.
Projected loan closing date: Typically 30 to 60 days, though the length of your lender's underwriting process may vary.
Closing costs: Details regarding which party will pay closing costs or other fees as well as how certain taxes and expenses will be prorated between the buyer and the seller at closing. (Some lenders may cap the amount of seller participation in these expenses.)
Broker's fees: Confirm who will pay the commissions for the listing broker and buyer's broker. Historically, the seller paid both commissions based on a percentage of the home sale price. That can still happen, but it’s subject to negotiation, as well as the terms of the contract you signed with your buyer’s agent.
Walk-through inspection: Gives the buyer the right to do a walk-through of the home a certain number of days before the closing to make sure everything aligns with the agreement and the seller's disclosures.
Delivery of possession: The deadline for the seller to vacate the property and hand over the keys.
Sometimes buyers are encouraged to write a personal letter to accompany their offer, hoping to gain an emotional edge over competing buyers. Though these may seem harmless, so-called buyer love letters can contribute to housing discrimination and may turn off some sellers. Additionally, it's important to know that this type of letter does not have any legal bearing on the transaction.
If you’re making an offer on a pre-foreclosed home or real-estate owned property, be prepared for an extended process, especially if it’s a short sale. Short sales are pre-foreclosure transactions in which a house is being sold by the owner for less than what they owe to the lender. An agent who's experienced in dealing with REO properties can be an asset as well.
7. Walk away, negotiate or move toward closing
Once the seller reviews your offer, they may accept, counter or decline it.
If the offer is accepted: A phone call, handshake or verbal commitment doesn’t make it official; it’s not a done deal until both parties sign the purchase offer agreement. After the brief celebration and sigh of relief, it’s time to replace your preapproval with a full mortgage application and begin the other steps that will lead you to closing day.
If the seller makes a counteroffer: You can accept it and begin the application and closing process or make your own counteroffer (in the form of a new offer letter). No matter how excited you are about the prospect of your new place, at this stage of the process, you have to be prepared to negotiate or even walk away if the terms aren’t right for you.
If the offer is refused: It's normal to feel disappointed, especially if this has happened several times. Regroup with your real estate agent, and then begin a new round of house hunting when you're ready to face the market again.
