Finding the home of your dreams can be a long, drawn-out process or it may be love at first sight. But even after you’ve found the right home, your next hurdle is making an offer on a house that’ll get accepted.
Local market conditions will determine how you make an offer on a house requires. In a buyer’s market, you’ll have more negotiating power but in a red-hot purchase market that favors sellers, you’ll be up against stiff competition and multiple bids.
What to do before you make an offer on a house
You may feel rushed into making an offer on a house once you’ve found a place you love. Before you do, though, here are a few steps and tips to follow.
Get preapproved for a mortgage
A key step to successfully making an offer on a house is getting preapproved for a mortgage.
A mortgage preapproval — which involves applying for a mortgage and is more involved than a loan prequalification — helps you determine how much you can afford to spend on a new home. It also allows you to get an idea of how much your lender is willing to loan you, and what your new mortgage payment will cost.
Getting preapproved for a mortgage prior to submitting an offer also helps reassure the seller that you’re a serious homebuyer. The seller can also go into negotiations knowing that your finances have been vetted, and that the purchase may be less likely to fall through due to funding hiccups.
Hire an experienced real estate agent
As a buyer, it’s really in your best interests to hire an experienced real estate agent who can help with your home purchase and negotiate the contract to buy a house. This agent will understand the market in your area, be well-versed in the process of submitting an offer and closing on the home, and can offer you suggestions about pricing and local comps.
This agent can be a notable asset when it comes to negotiating your offer, particularly in a super competitive market. If you receive a counter-offer from the seller, need to include certain terms, or want advice as you go through the inspection and appraisal process, having an agent on your side can be invaluable.
Plus, a buyer’s agent is compensated by the seller, so hiring one doesn’t cost you anything out of pocket.
How much to offer on a house
Now that you know what you can afford to spend, you’re ready to make an offer on a house. But how much is the property actually worth and what’s a fair offer? And how do you even begin to answer those questions?
Research the market
Offering the right price means knowing as much as possible about the location where you’re buying. A real estate agent can certainly help by finding local comparable listings, but educating yourself about the market in your area can help, too.
Firstly, determine whether you’re in a seller’s market or a buyer’s market.
A seller’s market happens when the available home inventory is lower than the number of buyers looking for a property. As a result, sellers are able to pick and choose their buyers and homes may go for asking price or above (often choosing between multiple bidders).
A buyer’s market is when there are more homes for sale than buyers looking for a property. When this happens, buyers get to call the shots and often have more room for negotiation.
Currently, we’re in a hot seller’s market. According to data from the National Association of Realtors, the median existing-home price for all home types rose to a record-high $350,300 in May 2021 – a 23.6% increase from a year ago.
Keep in mind that all real estate is local; market conditions in a place like New York City will differ dramatically from a city like Austin. Take some time to research recent home sales in your target area and how that specific market is performing.
Evaluate the home’s condition and its time on the market
The price that you should pay for a home will depend heavily on its condition. Consider the structure’s age, its overall condition, and any obvious repairs that may need to be made once you. You can also consider upgrades that have been made to the property, and when they were completed.
If you have the home inspected prior to closing, that report can also help you identify any problem areas or hidden issues that might exist, at which point you may be able to renegotiate with the seller. In the meantime, though, consider what you know about the property and what you’re able to see from listing photos, seller information, and your walk-through(s).
Ask how long the home has been on the market. If it has been up for sale for a while, the seller may be more willing to negotiate on the price. If you’re in a seller’s market and it’s a newer listing, though, your real estate offer letter will need to be more compelling.
Stick to your budget
It can be tempting to push your budget to its brink, especially if you’re in love with a property or you’re finding yourself in multiple bidding wars. However, it’s important to calculate your offer using solid comparable listing data and knowing the price point that fits comfortably within your budget. Avoid straying much beyond that number.
How to negotiate on price and terms
A home’s asking price is really just the starting point, especially in a competitive seller’s market. You may need to offer more than the seller’s asking price in order to make your bid stand out from other potential buyers. The seller may come back and ask you to negotiate your offer price, too.
Luckily, the price tag of a home isn’t the only area of negotiation. There are other terms involved with a home purchase that can be worked out to ensure both the buyer and seller meet in the middle to each get what they want.
When you make an offer, consider what (if any) contingencies you want to add to the contract to purchase real estate. These are specific conditions that must be met in order for the transaction to close. In many cases, having a contingency in your offer gives you (the buyer) a graceful exit without a financial penalty if the contingency isn’t met.
The most common contingencies include the home inspection, appraisal, and buyer financing. In a competitive market, sellers are less willing to entertain an offer with several contingencies – especially if they have multiple offers to choose from. However, if buyers are willing (and able) to waive any of these contingencies, their offer might be more enticing to a seller.
Depending on your down payment amount and your lender’s requirements, you may not be allowed to waive all contingencies. This is where cash buyers and buyers with substantial down payments have an edge.
Earnest money deposit
Earnest money is a small deposit of about 1% to 3% of the home’s purchase price that a homebuyer pays to the seller as an act of good faith. If your offer is accepted, the earnest money will go toward your down payment amount; if your offer isn’t accepted, you’ll get the earnest money back.
If you’re in a competitive market, considering upping your earnest deposit to make your offer stand out.
When making an offer on a house, timing is everything and can be a powerful bargaining chip. Buyers who are flexible enough to close quickly might have more success getting their offer accepted than buyers with rigid timelines farther out.
To gauge a seller’s motivation, your real estate agent should find out how long the home has been on the market. If the property is already vacant, is the seller looking to close ASAP? Or perhaps the seller needs time to pack up and move to a new build or relocate out of state.
If a seller needs more time in their home, you can offer them a rent-back agreement, which allows them to remain in the home as a short-term renter after closing. Or if they want to close sooner, having a lender that offers expedited closings could give you an edge.
After you make an offer: Acceptance vs. counteroffer
Once you’ve submitted an offer for a home, the seller has three choices: accept your offer, reject it, or come back with a counteroffer.
Ideally, the seller will accept your first (well-researched) offer and you can proceed with the closing process. If the buyer counters your first offer, you still may be in the running. This is where your real estate agent’s negotiation skills will be crucial to finding common ground with the seller’s agent, depending on what the seller comes back with.
Depending on the seller’s counteroffer, you may have to pay a higher purchase price, close more quickly, allow the seller to stay in the home longer, or even waive some contingencies in order to get your offer accepted. In some cases, you may need to do all of the above.
However, if the seller rejects your first offer and isn’t open to negotiation, you’ll need to continue your home search. Your agent can, and should, get feedback from the seller’s agent in order to find out why your offer was rejected so you can adjust future offers.
Don’t stress if your first offer is rejected; it’s not always your fault. A rejected offer could be due to a seller receiving multiple bids over asking price or a strong cash offer, or needing a faster closing.
FAQs about making an offer on a house
How long can a seller take to respond to your offer?
Unfortunately, there’s no hard-and-fast rule regarding how long a seller has to respond to your offer. If many offers were received, the seller may take a day or two to sift through them before accepting, rejecting, or countering.
If a seller is sitting on offers for an extended period of time, you may decide to rescind your bid. Each state has its own rules regarding earnest money deposits, so you’ll need to check with your buyer’s agent to determine how long you have to wait before withdrawing an offer if you want your earnest deposit returned to you in full.
Is it rude to lowball an offer on a house?
A lowball offer is a bid well under the asking price for a property. This tends to be common with fixer-upper homes that need considerable work. However, lowballing on price can backfire on buyers if a seller is offended and decides to reject the offer outright.
To ensure that your bid is competitive, look at recent comparable listings in the area and compare prices. Your real estate agent can help you craft a competitive offer that’s in line with what similar homes in the area have recently sold for.
Do sellers always pick the highest offer on a house?
Not always. When multiple offers are received, sellers have to narrow the field to the strongest candidates. For example, a buyer who’s offering 100% cash may be more likely to beat out a buyer who offers a slightly higher asking price but needs to be approved for a mortgage.
Likewise, a seller who needs to close quickly is more likely to choose a buyer who offers that flexibility rather than one who offers over asking price but can’t close for another 40 or 60 days.
What are other conditions you can negotiate if you’re on a tight homebuying budget?
Purchase price is the most common area of negotiation when bidding on a home, but it’s not the only consideration. If you’re on a tight budget, negotiate with a seller by waiving certain contingencies or repairs, agreeing to a shorter closing timeline, or offering a rent-back period if the seller needs it.