You’ve found a house you love, and now you’re ready to make an offer. This is where the process really begins to get serious and the paperwork starts to build.
Buying a home isn’t a handshake deal; verbal agreements just don’t count. That’s why everything important — in fact, any little detail expected to be a part of the terms of sale — must be written down and specifically agreed to. There are no shortcuts.
How making an offer on a house works
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 potentially even walk away if the terms aren’t right for you or if you feel pressured.
You’ve done your homework and know your local market. You have a list of sales comparable to the house you’re interested in, and you’re ready to make a smart offer. Here’s how the process works:
- You make a written offer.
- The seller accepts, counters or declines the offer.
- If it’s accepted, you move on to the next step.
- If the seller makes a counteroffer, you either accept it or make a new offer — and go back to step 2.
- If the offer is refused, you can make a new offer or begin a new round of house hunting.
Your agent will do all this work on your behalf.
The offer process
The written offer is legally binding, so in most cases a simple letter won’t work. There are many state, and sometimes local, laws guiding the process, so you’ll want to cover all the bases by using a legally approved form.
Your real estate agent can provide you with a Residential Purchase Agreement that complies with applicable state and local laws. In some states, it is common for a lawyer to be a part of the offer paperwork process.
We do not suggest the DIY route when it comes to the “offer letter.” While you can find “Intent to Purchase Real Estate” letter templates online, they are not binding legal agreements.
Some buyers are encouraged to write a personal letter to accompany their offer, hoping to gain an emotional edge over competing buyers or to explain why a bid based on comparable sales might be reasonable and justified. That’s fine; just don’t count on that letter having any legal bearing on the transaction.
A written offer may contain these elements, among others:
- A legal address and sometimes the legal property description
- Details regarding the purchase price and terms
- The amount and terms regarding earnest money
- A mandate that the seller will provide clear title to the property
- Details regarding any buyer’s participation in closing costs or other fees, as well as how certain taxes and expenses will be prorated between the buyer and the seller at closing
- The date and time of the offer’s expiration
- A projected loan closing date
- Other state-required provisions or disclosures
- Any contingencies that the deal is subject to
Contingencies and disclosures
At least a couple of standard contingencies will likely be noted in the written offer. These are things that need to happen before the sale can move forward. Your offer will most likely include some standard contingencies, such as one stating that the deal hinges upon you obtaining financing within a specified time. Another may require the completion of a home inspection. There could be several others.
Although you have to protect your interests and gather enough information to make a wise purchase, contingencies can — especially in hot markets — act as roadblocks to getting a deal done. It’s best for both the buyer and the seller to put only enough stipulations in the contract to cover the necessary bases; no more.
Seller disclosures, on the other hand, are usually required by law. This is information regarding the property and improvements that the owner is aware of that may affect its value. Disclosures could include natural hazards, structural issues or other substantial defects. You’ll want to review these carefully before committing to a purchase.
Putting cash on the line
When you make an offer, in most cases you’ll be required to submit a deposit — called earnest money — that the seller will hold in escrow as good-faith money. This may be anywhere between 1% and 3% of the total purchase price. The offer agreement should detail under what circumstances you’d have to forfeit the money (for example, in the event you back out of the deal without a valid reason), or returned by the seller (such as in the event your offer is rejected).
It’s a yes: what’s next?
Remember, a phone call, handshake or verbal commitment doesn’t make it official; it’s not a done deal until both parties sign the offer agreement. Once that’s done, after the brief celebration and sigh of relief, you should be ready to get down to the serious business of closing the sale. That will likely include a home inspection, and it will definitely mean starting the process of finalizing your financing through the lender.
That can take an average of 30 to 60 days to complete.
Making an offer on a distressed property
If you are making an offer on a pre-foreclosed home or real-estate owned (REO) property, be prepared for an extended offering 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 is owed to the lender.
Distressed property purchases are not easy deals to make and are best made by the very patient buyer. More often than not, successful transactions on such properties are completed by cash buyers.
Whether it’s finding a bargain on a distressed fixer upper, or making a move to the best address in the neighborhood, the foundation of a good home purchase is the initial written offer.
Arm yourself with in-depth tips and insights with our biweekly newsletter.
More from NerdWallet:
How Much House Can I Really Afford?
Compare Mortgage Rates
Find a Mortgage Broker