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Making an offer on a house is the critical first step in negotiations between you and the seller, forming the foundation of what is likely one of the largest financial transactions of your life.
It requires patience, perhaps a little diplomacy, and a firm understanding of the process.
Are you looking to buy a house soon? Here’s how to make an offer once you find one.
In this article:
Step 1: Work with a real estate agent
While you don’t have to use a real estate agent to buy a house, most buyers do — and they can be a big help at the start of your home-buying process.
Not only can an agent help you zero in on the right listings, but they can also set up tours, help you evaluate properties, and, most importantly, put together offers for the homes you’re interested in. Once your offers have been submitted, they can negotiate on your behalf and help guide you through the transaction.
Just make sure to choose your agent wisely. Focus on someone with deep experience in the part of town you’re shopping in, and look up past client reviews. You can also schedule interviews with several candidates to ensure you choose the one you feel most comfortable with.
Step 2: Decide how much to offer
Offering an appropriate amount from the beginning is essential.
To start, your real estate agent will do a comparative market analysis of recently sold local homes similar to the one you're trying to buy (known as real estate comparables, or “comps”). They’ll then use this data to guide — but not strictly dictate — the offer you make. Your agent will also likely consider how long the property has been for sale and the competitive state of the local housing market when helping you come to the right price.
For example, you may be able to make a lower offer on a home that’s been on the market a long time or in a market that has few buyers and many homes for sale (also called a buyer’s market). The opposite would be true of a newly listed house or a particularly hot housing market.
Whatever you do, you should always offer below your preapproved loan maximum. That gives you room to negotiate with the seller without exceeding your budget.
Read more: How much house can I afford? Use the Yahoo Finance affordability calculator.
Step 3: Consider contingencies
Real estate contingencies establish conditions that must be met in order for the transaction to go through. They’re a type of buyer protection that can keep you from buying a home that has hidden defects or that you can’t afford.
Common contingencies include:
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Financing contingency: This allows you to back out of the deal — and get your earnest money deposit back — if your mortgage loan falls through.
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Appraisal contingency: An appraisal contingency states that if the home doesn’t appraise for the amount you’ve offered, you can renegotiate or exit the transaction.
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Sale contingency: This says that your current home must sell before you go through with purchasing the property in question. If it doesn’t, you can back out of the transaction.
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Inspection contingency: This contingency lets you back out of the deal if your home inspection reveals deal-breaker issues for you.
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Title contingency: If the title search reveals problems, this contingency would let you exit the transaction.
You could technically include all of these contingencies in your offer, a few, or none — which is called “waiving” contingencies. You might waive contingencies in a particularly competitive housing market to make your offer stand out, or if you know you have the cash to deal with any problems that arise. Your agent can advise on what is best for your specific situation.
Step 4: Make an earnest money deposit
Another part of your home offer is the earnest money deposit, which is also called a good faith deposit. It acts as a sort of deposit on the house — an amount you’ll forfeit if you don’t go through with the deal (and don’t have the proper contingency for backing out in place). A bigger deposit can indicate that you’re very interested in the home, while a smaller one may do the opposite.
The proper amount to offer will depend on market conditions and location, but you can generally expect to pay 1 to 2% of the purchase price. Your real estate agent can guide you on what to do in your case.
Ultimately, the earnest money will be applied to your closing costs or down payment, but you write it as a separate check at the start.
Dig deeper: Cash to close — Closing costs, down payment, and other expenses you’ll owe on closing day
Step 5: Submit the offer
A home purchase offer is typically not hashed out over coffee face-to-face. It is most likely a detailed written document delivered by your agent to the seller's agent and then to the seller.
The standard form conforms to local or state real estate regulations and applicable disclosure laws and generally details:
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The offered purchase price and terms — whether it's an all-cash offer or dependent upon obtaining financing
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An estimated date for the purchase to be finalized
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The earnest money deposit
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How payments will be made or prorated between the buyer and seller for costs such as taxes, insurance, and utilities
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What and when inspections will be requested and completed
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Contingencies included in the offer
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A deadline for when the offer will expire
If you’re asking the seller to pay for things like title insurance or closing costs, this is also something you’d include in your offer. Again, your agent will walk you through this process and ensure your offer covers all your bases.
One more note: If you’ve been preapproved for a mortgage, you’ll want to include your preapproval letter with your offer too. This shows you’ve gone the extra mile and are a safe bet to secure financing.
Learn more: Seller concessions — When sellers might cover some buyers' closing costs
Step 6: Negotiate counteroffers
After you submit your offer, you can usually expect the seller to respond with a counteroffer. If they do, go through it carefully with your agent, and be sure you understand what the seller is asking for so you can decide whether to accept their new offer or counter again yourself.
Keep in mind: You can negotiate more than the price. You might offer concessions that move the discussion away from the purchase price to less volatile issues such as timelines or foregoing nonessential repairs and upgrades. Or, the seller may have other priorities that can move the needle to an offer acceptance.
In the end, it’s OK to move on and start the house-hunting process over if your and the seller’s goals aren’t aligned. Buying a house often takes a "things will work out for the best" attitude.
Read more: 7 strategies for reducing closing costs
What happens after the offer is accepted
If the seller officially accepts your offer, the following will happen:
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The offer letter is signed and is now considered a purchase agreement.
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The earnest money will go from your hands into an escrow account for safekeeping.
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You'll shop for the best mortgage lender you can find — even if it isn't the lender who gave you the mortgage preapproval.
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You will submit an application, and the loan underwriting process will begin.
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Your home will be appraised and inspected.
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A closing date is set, and you’ll soon be in your new home.
Dig deeper: Closing on a house — What to expect and how to prepare
How to make an offer on a house FAQs
How long after making an offer on a house do you hear back?
Once you've made an offer on a house, you should hear back within 24 to 72 hours. You may find out that your offer has been accepted or rejected, or the seller might want to negotiate the terms of the sale, sending you a counteroffer instead.
How much lower can you offer on a house?
If you're in a seller's market and there's a lot of competition, you may not be able to offer below asking price on a house. On the other hand, you may be positioned to make a low offer if you're in a buyer's market or the home has been on the market for a while. A good real estate agent can help you zero in on an offer amount that makes the most sense for your situation.
Can I offer 20% below the asking price?
It's possible to offer 20% below a home's asking price, but this is considered a lowball offer and may only work if the seller is very motivated. Your real estate agent can help you determine the right amount to offer based on local market conditions.
How do you make the strongest offer on a house?
To make a strong offer on a house, do your research and offer an amount that’s in line with local market expectations. You can also include proof of your mortgage preapproval, offer a large earnest money deposit, or waive contingencies.
This article was edited by Laura Grace Tarpley.
