How to Make an Offer on a House

Making an offer on a house is a critical step in home buying. Your offer price and the seller’s response may have implications that last for years!

Savvy buyers know that successful offers — those that work for both the buyer and seller — don’t happen by chance. They take forethought and planning, plus an understanding of how the current housing market affects prices. But by following a few strategies, making an offer is something even a first-time homebuyer can do with confidence.

Here are some tips to help you make a successful offer on a home.

Before you make an offer (or even start shopping)

Things you do before you set foot in an open house can profoundly affect the eventual success of your offer.

1. Get pre-approved. Your first step in the homebuying journey should be to get pre-approved for a mortgage loan. This benefits you throughout the buying process. You’ll know exactly how much home you can comfortably afford, helping you set a shopping budget. You can shop with greater confidence, knowing the final approval of your loan is likely. Pre-approval also lets buyers know you’re serious as a shopper, which can have positive implications when you make your offer. Get pre-approved in minutes with AmeriSave.
2. Contact a real estate agent. Real estate agents are licensed professionals that are hired to work in your best interest. They’re also experts in the local housing market who can help you determine the fair market value of the homes in which you’re interested. This can be very helpful when you’re strategizing your offer. Agents can also handle a lot of the legwork of the offer process.

Strategizing your offer by market

Once you’ve completed your home search and have chosen a house to buy , it’s time to decide your offer price. How you go about this may depend on the current conditions of the housing market — whether the market favors buyers or sellers. Your real estate agent can help you understand what’s happening in the local market so you can optimize your offer.

In a buyer’s market

1. Research the home. A good first step is getting to know a little more about the home. Ask the following questions:

• How long has the home been on the market? If the home has been on the market for two to three months (or longer), the owner may feel greater pressure to sell.
• How long has the owner lived there? A long-term owner may have strong emotional attachments that could make them less willing to bend on their asking price.
• Has the owner made any recent additions or renovations? An owner who’s invested in the home more recently may feel less inclined to budge on their listing price. Ask the city’s building department if they can provide any records for the property.

2. Perform a comparative analysis to determine fair market value. A comparative market analysis (commonly referred to as “comps”) looks at the sales data for homes recently sold in the area. From this, you can develop a stronger sense of the current fair market value for the home you’re interested in. Note that your real estate agent can perform this analysis for you.

3. Decide on a deposit amount. Your earnest money deposit is a financial commitment to buy a home once you’ve entered into a purchase agreement. The deposit is put into escrow when you sign the agreement, then goes toward your mortgage down payment when you close. If you walk away from the sale after signing the purchase agreement, the seller keeps the deposit. Deposits are typically 1% – 3% of the home’s listing price.

4. Decide on your contingencies. Contingencies are like a safety valve. They allow you to recoup your deposit if a significant problem with the home or your loan approval crops up as you approach the closing date. Typical contingencies include:

• The property must pass a third-party home inspection. (You may provide the owner with the opportunity to fix any issues, at their expense, that emerge during the inspection.)
• Appraisal contingencies: the home’s appraisal must be higher than your agreed-to sale price.
• Your mortgage loan must receive final approval.
• You must sell your current home before closing.
• The home must have a clean title.

In a seller’s market

When housing demand rises and supply wanes, the market turns to favor sellers. In this more competitive market, you may want to consider these tactics such as these.

1. Offer above the seller’s asking price. As many buyers compete for fewer homes, sellers are confident they can ask for more money and get it. If you find yourself in a bidding war with another potential buyer, you may have to make an offer — perhaps multiple offers — above the listing price. Just don’t make an offer that goes above your mortgage preapproval or what you have budgeted for a monthly payment.
2. Make an all-cash offer. If you have the means, an all-cash offer could be very attractive to a seller. With a cash payment, the seller knows they don’t have to wait on your loan approval, which significantly speeds up the closing process. However, most home buyers won’t be able to pay with cash and need to consider financing options.
3. Make a larger deposit. By making a deposit larger than the typical 1% – 3%, the seller has even greater security if you walk away from a purchase agreement.
4. Forego contingencies. Another typical seller’s market tactic is the removal of contingencies from the offer. For instance, you could consider removing the title search home inspection, and appraisal contingency. This may make your offer more attractive to the seller, as it ensures they won’t have to be responsible for any title issues, repairs, or issues with valuation. It would also speed up the closing process.

The flip side, of course, is that these become your potential issues. And while you could still walk away from the agreement, you’d likely lose whatever money you put down as a deposit. Your real estate agent can help you better understand the risks with this approach, and perhaps which contingencies are higher risk to remove.

Making your offer

Once you’ve decided on your offer price, deposit, and contingencies, you need to prepare an offer letter for the house. This is another task your real estate agent can take off your hands. But if you should happen to handle drafting the letter yourself, be sure it includes:

• The address of the property and name of the seller
• The names of anyone who will be on the home’s title
• The offer price
• The amount of earnest money deposit
• Your contingencies
• The closing costs and fees (these should be available from your mortgage lender)
• Proposed dates for closing and your move-in
• A deadline for the seller’s response

You can also consider adding a personal appeal to the letter — a paragraph or two explaining why you are interested in the home. This can be effective in a competitive market, or in a situation where the seller clearly has an emotional attachment to the home.

Negotiating the sale price

Once the seller has received your offer, three things can happen.

• The seller accepts the offer. If the offer is accepted, then there’s nothing more to negotiate. Congratulations, you’re about to purchase a house!
• The seller rejects the offer. The seller may reject your offer outright if it’s well below their expectation or if they have other offers closer to (or above) their asking price. You may consider making a more competitive offer or moving on to another house for sale.
• The seller makes a counteroffer. If the offer is competitive but not quite at an amount the seller likes, you may receive a counteroffer. You can either accept the seller’s counteroffer or propose another counter. This can go on for multiple rounds. You (or the seller) may also propose non-financial concessions, such as removing contingencies. Your real estate agent can help you decide how to approach this process.

Finalize and sign the purchase agreement

Your agent will write up the purchase agreement, typically using a standard contract template that can be customized. The agreement includes the buyer and seller information, property details, purchase price, contingencies, financing details, closing costs and who will be responsible, what home features (such as kitchen appliances) will remain in the house, closing date, and more.

The agreement will also specify your earnest money deposit amount. Once you’ve paid this, it’ll be put into escrow by a third party (often by the title company handling the closing) and applied to your down payment on the closing date.

Frequently asked questions

How do I put an offer on a house?

Once you’ve located a home and decided how much money you want to offer the seller, you need to draft an offer letter. This letter includes key information, including the names of the parties involved (you and the seller), the property address, your offer amount, and any contingencies. Your real estate agent can prepare the offer letter and deliver it to the seller’s agent for consideration.

How much cash do you need to make an offer on a house?

You don’t need any money to make an offer on a house .
Depending on the type of loan you apply for and how competitive your offer is, the amount of cash you need for a down payment may vary, However, you should be prepared for your offer to be accepted and for the sale to move forward. In that case, you should have preapproval for a mortgage loan and funds available for your earnest money deposit (usually 1% – 3% of the home’s listing price).

Will I get my earnest money back?

Your earnest money deposit is held in escrow by the title company. When the sale closes, it’ll be put toward the amount of your down payment.

If you walk away from the purchase for any reason not listed in the agreement (such as your contingencies), the earnest money will go to the seller. Make sure you check all your mortgage documents, and understand the terms and conditions before you sign any agreements.

Can I offer less than the list price?

Yes, offering less than what the seller asks for is very common. Your offer may be dictated by current conditions in the housing market, the length of time the home has been on the market, and whether the home needs any major upgrades.

Should I offer over the asking price?

In a seller’s market (such as the housing market in 2022), it’s common for potential buyers to offer above the asking price for a home. Your real estate agent can help you decide if this is the right approach for you.

How much money do I have to put down on a house?

Experts recommend making a 20% down payment for a conventional mortgage. This not only represents a significant amount of home equity but also ensures you won’t have to pay for private mortgage insurance. However, there are alternatives to putting 20 percent down.

The golden rule: Stick to your budget

While making an offer on a home takes a bit of planning, it’s something that virtually any homebuyer can manage. But it’s also a process during which it’s easy to get carried away by emotion. The golden rule is to make a budget and stick to it. Determine what kind of monthly payment you can afford and get preapproved for your mortgage. Then use those as your guide. Before you know it, you’ll be a homeowner.