Buying your first home is a big move, and you have plenty of choices about how to approach your offer. Those decisions can be intimidating, but they’re easier when you know what to expect. Here’s a step-by-step look at how to make an offer on a house that could actually win the deal.
1. Be prepared for making an offer
Even before you find that perfect home, there are steps you should take that will put you in a better position to make an offer.:
- Get a mortgage pre-approval: A pre-approval letter tells you how much a lender will loan you to buy a home. Most sellers won’t take an offer seriously without a pre-approval, so having one in hand will let you move fast when the right home comes along.
- Learn about the local housing market: If homes are selling quickly for above list price, you’re likely in a competitive or “hot” market. You could end up competing with other buyers for a home and get drawn into a bidding war. Knowing the market can help you decide which homes to make offers on and what price to offer. Look up housing trends in your area and get insights from your real estate agent.
- Understand the seller’s motivation: Most real estate agents have strategies for finding out what’s going on with a seller, such as why they’re selling and how soon they want to move. If a seller isn’t in a rush to sell, that can affect the price you choose for your offer.
2. Know the basics of an offer
Your real estate agent will put together your offer using a standard template that includes all the key details:
- Your offer price
- Your down payment amount
- The amount of earnest money you’ll deposit
- A copy of your pre-approval letter
- Any contingencies you want to include
- A breakdown of the closing costs and who will pay each one
- When you hope to close (i.e., complete the purchase)
- The offer’s expiration date
We’ll cover some of these, but your agent should be able to walk you through them all and help you decide how to make an offer that works for you.
3. Decide on price, down payment, and earnest money
If you’ve already been pre-approved, you probably have a good idea how much you can afford to spend on a home. But the price you decide to offer will depend on many factors: the competitiveness of the market, the home’s popularity, and more. There are circumstances where it makes sense to offer an amount above or below the list price, and others where you should meet the list price.
Ultimately it’s your choice what to pay, but your agent will have experience to back up their recommendations, along with access to sales and market data that can help you make an informed decision.
How does earnest money work?
Earnest money is a deposit you pay soon after the seller accepts your offer, as a way of showing you’re committed to the deal. Once the sale is complete, the earnest money you paid goes toward your closing costs.
If you decide not to buy the home for a reason that’s covered in your contract—such as a contingency—you can get your earnest money back. If you decide not to buy the home for another reason, the seller gets to keep your earnest money.
Buyers usually pay 1%–3% of the home’s sales price in earnest money, though they may increase this to make their offer more competitive. In some areas earnest money is a fixed amount.
4. Choose your contingency clauses
Contingencies are an important part of your offer because they give you a way to back out of the deal if certain conditions are not met. When you use a contingency to cancel the deal, you can usually recover your earnest money.
The contingencies available to you will depend on your location, but here are the most common ones:
- Mortgage contingency: Also known as a financing contingency or loan contingency, this one is essential if you’re getting a mortgage. Your lender will go through the final loan approval process to ensure nothing in your finances has changed before approving your mortgage loan. If your loan isn’t approved, this contingency lets you back out of the deal.
- Appraisal contingency: An appraisal measures the home’s value to make sure you and your lender are not paying more than what the home is worth. In most areas, an appraisal contingency lets you back out of the deal if the home’s value is lower than the sales price.
- Inspection contingency: A home inspection looks at the condition and safety of the home, plus any repairs that should be made. If the inspection report reveals major issues with the home, you can reconsider your offer. In some cases you may need additional inspections, such as a pest, sewer, or foundation inspection.
- Home sale contingency: If you need to sell your current home before buying the new house, you’ll need to add this contingency as well.
- Title contingency: Title is the history of ownership of a property. This gives you the option to walk away if there are any problems with the title, such as judgments or liens against the property or someone else claiming ownership of the home.
- Attorney review: You may want an attorney to review the contract before closing on the home. The attorney can make sure nothing has been removed or added to the contract without your knowledge. This is more common in some states than others.
Sellers prefer offers without contingencies, so use them sparingly if you can. But some can be very important for protecting you as the buyer.
5. Write a personal letter to the seller
When you make your offer, it can also be a nice touch to include an offer letter about why you’d like to buy the home and what purchasing it means to you. A personal letter to the seller from the buyer can help your offer stand out from others in a competitive market.
Keep in mind that fair housing laws prohibit sellers from accepting or rejecting an offer on the basis of a protected characteristic, such as race, religion, or familial status. Try to make an emotional connection with the seller by focusing on the features and amenities you love about the home rather than personal characteristics.
6. Submit your offer—and wait
Once your offer is ready, your real estate agent will submit it on your behalf. If the seller has received other offers or expects to, you may have to wait a few days for an answer.
The seller has three possible responses to your offer: accept it, counter it, or reject it outright.
If they accept or reject your offer, you have a final answer and can move on to the next step: either proceeding with the purchase, or continuing your home search. But if the seller makes a counteroffer, a negotiation between you and the seller begins.
Your real estate agent’s expertise is crucial to an effective negotiation. Discuss with your agent which aspects of your offer you’re willing to bend on and which are non-negotiable. Approach your negotiation with a respectful and cordial attitude. Remember that the seller wants to sell and you want to buy, but there may need to be some give and take from each of you to reach an agreement.
What if I’m caught in a bidding war?
A bidding war happens when a seller receives multiple offers in a short amount of time. Because buyers are competing against each other, they may raise their offer price, give up contingencies, or make other “concessions” to make their offers more appealing.
This can be a tough situation for any buyer, but especially a first-time buyer. You may have to make quick decisions about whether to change your offer or walk away from the home. Your agent can give you advice to help you avoid bidding wars when possible, and navigate them wisely when you can’t.
8. Sign the contract
If you and the seller reach an agreement, you’ll sign a contract. Read it carefully, and make sure you understand the details before you sign. The offer process can be exciting and stressful, but take your time with this step. Ask your agent any questions you have, and find out what will be expected of you in the days and weeks ahead.
9. Schedule your inspection, appraisal, and more
Once you sign the contract and your offer is formally accepted, you have some things to do. You’ll need to apply for your loan and schedule an inspection and appraisal, if those contingencies are in your contract. If an attorney will be reviewing the final contract, you’ll need to schedule that as well.
Meanwhile, your lender and the title company will be busy checking that everything is in place for closing day. Along with your real estate agent, they should keep you up-to-date on what you need to know and do as the process goes forward. Learn more about closing on a house.
10. Close on your new home
When all the contingencies have been met and your mortgage is ready, you’re finally ready to sign the paperwork and close on the home. Your lender will transfer your funds to the attorney or your title company to finalize your purchase. Once that’s done, you can get your keys!
Takeaway: how to make an offer on a house
Making an offer on a special home can be an emotional experience. Your agent can guide you through the ups and downs of the process. They understand how to make an offer on a house that’s competitive and likely to be accepted—and how to move on quickly if it’s not. If it doesn’t work out, remember there will be other homes, and now you have experience on your side. If it does work out, celebrate!