how to make an offer on a house

How to Make an Offer on a House in 6 Easy Steps

Making an offer on a house means you are almost a homeowner. Sending an offer may sound easy, but figuring out how to make an offer on a house can be complex. 

Fortunately, we’ve got you covered!

While the process can be intimidating, knowing exactly what to do when making an offer can simplify the process.

This guide will teach you how to make an offer on a house, from calculating the offer price to deciding the final offer to getting the offer accepted. 

Before getting down to business, here’s some background on making an offer.

Who’s going to help the buyer create an offer?

The real estate agent. Since an offer is a legally binding agreement, a DIY offer is out of the question. Buyers draft their final offer with the assistance of their agent. However, buyers are free to ask the assistance of a real estate attorney when needed. 

You don’t need to hire a real estate attorney to draft an offer, but it may be helpful to have a lawyer check the document. 

Are there fees involved when submitting an offer?

It depends. To make sure they attract only serious buyers, some sellers may require an earnest money deposit of 1% to 5% of the purchase price. Earnest money is refundable but whether you’ll get your deposit back or not depends on the terms included in your offer. In some cases, the seller may ask for a non-refundable due diligence fee or option fee. 

What’s included in the offer?

A typical offer contains the following elements: 

  • Property details. The offer includes the property’s address and description, as listed in the title. 
  • Property price. The final price and terms of payment are also included in the offer.
  • Loan closing. Your offer should also indicate the projected loan closing and/or approval date.   
  • Offer expiry.  Some offers include a consideration window which indicates how long the offer remains valid. If the seller fails to respond within the specified timeframe, the buyer can make another offer. 
  • Earnest money. If a seller requires earnest money, the total amount and the terms are also outlined in the offer. The offer should also specify the conditions where the earnest deposit may be refunded.
  • Other fees. Information on which party (the buyer or the seller) is responsible for expenses such as closing costs, taxes, and other fees. 
  • Title order. The offer indicates that the seller needs to provide the property title.
  • State requirements, whenever applicable.
  • Contingencies and disclosures. Contingencies represent conditions such as the results of the home inspection or obtaining financing before the offer becomes legally binding. These contingencies protect both the buyer and the seller. Disclosures, on the other hand, refer to specific hazards or problems that the seller should notify the potential buyer about. These mandatory disclosures vary from one state to another and may include information that may affect the property’s value like structural defects or natural hazards.  

Seeking assistance from a real estate agent and/or attorney in drafting the offer and negotiating terms such as contingencies puts you in a stronger position. 

Steps in Making an Offer

1. Calculate Your New Total Monthly Payments

Before drafting an offer, make sure you can afford the home and all the payments associated with it.

Start crafting your offer by studying looking at how much the property is selling for. Learning how to make an offer on a house begins by studying how much the house costs. To avoid future payment issues, revisit all the costs associated with buying a house. Buying a home often includes the following fees:

  • mortgage payments 
  • property taxes
  • insurance, including home insurance,  private mortgage insurance, and hazard insurance

For more information on property taxes per state, check out this guide. You can also try Homeflow’s mortgage calculator to estimate how much your home loan will cost.

2. Calculate Your Expected Return If You Sell 

To get the best deal out of your prospective home, think about the years to come. Having a seller mindset can help you craft a suitable offer for your future nest.

So, look at the home you’re planning to purchase as an investment opportunity.

Is the house a lucrative investment or is it a money pit?

Naturally, a home situated in a good neighborhood with rising property values will have more growth potential.

Whether you’d want to sell this house after you buy it is up to you, but always think about the property’s potential market value when making an offer.

Do you have questions on how to calculate your potential return on investment for a property? A home sale calculator might help.

3. Prepare a Comparables Report To Find Price

Most buyers are comfortable in taking the seller’s price thinking that there’s no room for adjustment. Little do buyers know that with a bit of research they can negotiate the price and find a valid reason for the discount. 

When the property is overpriced, sellers are more willing to entertain offers lower than the asking price. So, before making an offer, check out the sales comparable report, also known as comps, for properties in the area where you’re planning to buy a home. 

A property or sales comparable report is a document containing insider information about recent home sales in the area.  By looking at the comps of similar houses in the area, you will have a better idea if a property is overpriced.

Aside from real estate comps, you can also check out online house value calculators, like the one from Zillow. With these home value estimators, you simply need to input the property address to know it’s estimated value. 

4. Decide On A Final Offer Price

Considering all the information above, buyers, with the help of their agents, may now decide on the initial offer price. Some buyers deliberately make a lowball offers to open negotiations. 

What Is A Lowball Offer?

A lowball offer is an offer that’s significantly lower than the seller’s asking price. Lowball offers is a good tactic in pressuring sellers who are keen on liquidating as soon as possible. 

When a seller accepts a lowball offer, buyers can buy the homes they’re interested in at a discount. However, in a seller’s market where there is a high demand for homes, low ball offers may not work, since sellers have a better bargaining position.

Can Buyers Send An Offer Below The Asking Price?

Yes, the buyer can send an offer on a house that’s less than the asking price. But sellers are more likely to accept this kind of offer in a buyer’s market, where the prices are more fluid.

In a buyer’s market, there’s usually an oversupply of homes and buyers have more options. Hence, sellers are more receptive to accepting offers below the selling price. 

Sellers are more likely to accept offers below the selling price if the buyer:

  • Is paying in cash
  • Has a mortgage pre-approval
  • Doesn’t need to sell a house he owns before he can afford to buy the property 

Deciding On The Price 

Lowball offers don’t always work. While this tactic may be effective in getting some sellers to accept your offer, it may be insulting to others. 

Consider the following when drafting your offer:

  • Consider market conditions. Determine what kind of market you’re in. If you’re in a buyer’s market where the sellers are competing for the buyers, a low offer may be appropriate. 
  • Pen the offer with respect. Sellers expect potential buyers to make an offer below the listed price. Offering a low price can start negotiations for both parties. However, some sellers find lowball offers somewhat upsetting. If you’re planning to make an offer below the asking price, show how much you appreciate the property. You may also offer an explanation of why your offer is below the asking price. 
  • Don’t offer an insultingly low price. Often, buyers focus on how much they’d like to pay for a house not the actual value of the property. Before you decide on a number, understand the market value of comparable homes and whether your offer is reasonable.
  • Add a reasonable number of contingencies. While contingencies exist to protect mainly the buyer, don’t go overboard. Add only the necessary contingencies in your offer. Remember, adding too many contingencies make sellers think you’ll back out in the first sign of trouble. 
  • Have your agent contact the listing agent. Did the seller turn down offers? Why? Asking your agent to contact the listing agent can help you understand the seller’s stance on the property price. Through the help of the listing agent, you may be able to come up with an offer that the seller would most likely consider.
  • Avoid negotiating a lower earnest deposit. If you made a lowball offer and you also want to reduce the earnest money deposit, the seller may think that you’re not serious about the property. If you’re planning on submitting a low offer, the least you can do is to meet the seller’s required earnest money deposit. 

5. Prepare And Send The Offer Document

After discussing the price you can submit your initial offer but your job doesn’t end there. It also pays to figure out your best and final offer (BAFO). The BAFO represents the best price and terms that you can offer to the seller. 

Once you submit your initial offer, the seller may respond with a counteroffer. Sometimes, you need to compete with other people interested in the property. Even when negotiating for a property you absolutely love, you should have a bottom line and this is exactly what your BAFO is for.

Your BAFO represents the maximum amount you’re willing to pay for the property – it may be above or below the asking price. BAFO may also include contingency waivers and other terms such as shorter closing time. 

Best And Final Offer Strategy For Buyers

In cases where there are other buyers interested in the property, you may be forced to enter a bidding war. Having a good BAFO can increase your chances of getting the property.

Here are some expert insights on crafting a winning best and final offer.

  1. Ask your agent to get as much information as they can from the listing agent. 
  2. Verify the listing agent’s information.
  3. Check the comps in the area.
  4. Bid an amount you’re comfortable of paying. Spending more than your budget, even for a property you want so bad is never a wise move. 
  5. The highest price doesn’t always win. If you have a strong financial profile or your offer has the most favorable terms for the seller, you may have an advantage over other bidders. 
  6. Consider the seller’s circumstances. In some cases, the seller would lean towards an offer that allows them to rent the property from the new owner for a few months after closing. 
  7. If possible, include fewer conditions. Submitting this type of offer appears more favorable to the seller.

Attach An Offer Letter

Aside from the offer, you may also send an accompanying offer letter.

What Is An Offer Letter?

Often emotional rather than transactional, an offer letter is an optional document sent by a buyer to the seller. For the most part, buyers send offer letters to convince the seller that they’re the right buyer for the property. 

While an offer letter isn’t required, a good offer letter may be able to add strength to a buyer’s offer.

Buyers may find the following tactics helpful in crafting a powerful offer letter:

  1. Compliment the property but don’t exaggerate. Show how much you like the home and why you want to buy it, but be genuine. 
  2. Look for a connection. Some sellers are more likely to a buyer with whom they can establish an emotional connection with. You may mention a common ground such as having kids or a mutual love for something like travel or crafting.
  3. Don’t go overboard. Make sure your letter reflects why you’re a good candidate for the home, but keep the letter as simple as you can.

Setting Contingencies

Contingencies are a set of conditions that buyers can use to get out of the deal without breaching the contract. Contingencies allow both parties buyers to legally walk out of a deal in case some requirements are not met. Here are some contingencies that buyers may include in the offer:

  • Home inspection contingency. An inspection contingency states that the buyer may back out if the inspection report finds major flaws in the property.
  • Appraisal contingency. This contingency allows the buyer to walk out of the deal in case the property value falls below the asking price.
  • Financing contingency. This states that the buyer’s offer is only valid if he or she successfully obtains financing for the home. 
  • Title contingency. A title contingency means that the buyer will only accept the deal if the title search proves that the seller is the true owner of the property. 
  • Insurance contingency. This means that the buyer will only proceed with the purchase if he or she can get insurance for the property.   

Sending The Offer

After preparing your BAFO, setting the contingencies and creating your offer letter, it’s time to send the offer. Always check if the seller indicated a deadline for sending offers and make sure you send yours on time. Offers are typically delivered by your agent to the listing agent. 

6. Wait for the Seller’s Decision

Once you hand in the offer, the ball is in the seller’s court. 

Scenario #1: The Seller Sends A Counter Offer Or Shows Willingness to Negotiate

Sending an offer opens the gates for negotiation. When you send a low offer, the seller may send a counter offer. If there is more than one interested buyer, the seller may ask for the best and final offer for select buyers. 

Scenario #2: The Seller Rejects or Ignores Your Offer

When sellers find the price to be too low or your terms to be too stringent, they may reject your offer. Some sellers deliberately ignore some offers or wait for the consideration window to lapse. If you’re still interested in the property, try to revisit your offer and submit a new one.

Scenario #3: The Offer Gets Accepted

Congratulations, the seller accepted your offer. Now what? 

First of all, you have to call your real estate team to help you with the next series of steps. Typically, between the seller’s acceptance and closing day (the day you own the house), there are still plenty of things that need to happen. In summary, however, here are your next steps:

  1. Deposit the earnest money.
  2. Finalize your mortgage application. 
  3. Set a closing date with your attorney.
  4. Check the contingencies. Get the house inspected and appraised, and ask the seller to get the repairs done if that’s included in your contract. 
  5. Get home insurance.
  6. Have a final walkthrough of the home. 
  7. Close the deal! 

Now That You’ve Learned How To Make An Offer On A House, What’s Next?

Learning how to make an offer on a house is an essential skill potential home buyers should possess. Knowing the basics required in drafting the best offer and deciding on the most reasonable terms and price can help you own the house of your dreams.   

If you’re struggling on what or what not to include in your offer letter, consulting a pro is always helpful. Working with an experienced real estate agent can help you draft an offer that’s both advantageous to you and the seller. With that in mind, be sure to consult a seasoned agent (or attorney or both) for better success!

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