Buying your first home is a big step, and there are many options for how to make an offer. Those decisions can be intimidating but easier when you know what to expect. Below are the steps to making an offer on a home that could be the one that wins the deal.
1. Steps Before You Make an Offer
There are a few steps you should take before finding the perfect home to be in a better position to make an offer.
Get pre-approved for a mortgage loan:
Unless you plan to pay for the house with cash, the pre-approval letter is the way you can really know what price range the house you are looking for should be in. Although you can get an initial idea using an online mortgage calculator, the pre-approval letter will tell you how much the bank or another lender can lend you. Additionally, most homeowners for sale won’t take an offer seriously if the buyer doesn’t include a mortgage loan pre-approval letter, so having one on hand will allow you to move quickly when you find the right home.
Learn about the local housing market:
If homes are selling quickly and above their list price, it is likely a competitive market, with many buyers competing for a few homes. Look for them and get information from your real estate agent about how these trends could affect your offer.
Understand the owner’s motivation for selling:
Many real estate agents have strategies for obtaining information about the owner, such as his reasons for selling and how soon he plans to move. Knowing whether or not a homeowner is in a hurry to sell their home can influence the price you decide to offer them for the home.
2. Know the Basic Terms of an Offer
Your real estate agent will write your offer using a standard format that will include the following key terms:
- The offer price
- The down payment amount
- The amount of money to be deposited as collateral
- Copy of the pre-approval letter
- A breakdown of closing costs and who will pay each
- The expected closing date (the day the purchase will be completed)
- The expiration date of the offer
We’ll explain some of these terms, but your agent can advise you on each and help you decide how to make an offer on the right home for you.
3. Decide on the Price, Down Payment, and Security Deposit Amount
If you’ve already been pre-approved, you probably have a good idea of how much you can spend on buying a home. But the price you decide to offer will depend on many factors: the market’s competitiveness, the house’s popularity, etc. There are circumstances where it makes sense to offer a price above or below the list price and others where you should offer the list price.
Having a good agent is key to understanding how to offer a house. Ultimately, it is your decision how much to pay. Still, your agent will have the experience to base their recommendations, in addition to having access to information and data about sales and the market that can help you make a well-informed decision.
How Does Escrow Work?
The earnest money deposit is an amount that the buyer pays a few days after the owner of the house for sale accepts the offer as a way to show him that he is seriously committed to buying the house. When the sale is completed, the earnest money the buyer paid is applied to your closing costs.
If you decide not to buy the house for any reason contemplated in the contract—such as a contingency—you can recover the money from the security deposit. If you decide not to buy the home for another reason, the owner of the home for sale can keep the escrow money.
Buyers typically pay between 1% and 3% of the sales price in escrow; however, they can increase this amount to make their offer more competitive. In some areas, the escrow deposit is a fixed amount.
Read in detail about The Meaning of Escrow and How it Works in a Real Estate Transaction
4. Choose Contingency Clauses
Contingencies are an important part of the offer because they give the buyer a way to back out of a deal if certain conditions are unmet. When you use a contingency to cancel a deal, you can usually get your escrow money back.
The contingencies available to you depend on where you are located, but here is a list of the most common ones:
Mortgage Loan Contingency:
Also known as Financing Contingency or loan contingency, this is essential if you obtain a mortgage loan. Your lender will review all your documents before final approval for the loan to ensure your finances have not changed. This contingency will allow you to cancel a deal if your loan is not approved.
The appraisal measures the home’s value to ensure that neither you nor the lender pay more than the home is worth. The appraisal contingency usually allows you to cancel the deal if the home’s value exceeds the sales price.
A home inspection reviews the condition and safety of the home, as well as any repairs that need to be made. If the inspection report reveals major problems with the home, consider reconsidering your offer. In some cases, additional inspections may be necessary, such as pest inspections, septic tank inspections, or foundation inspections.
Home sale contingency:
You will need to add this contingency if you need to sell your current home before you can purchase the new home.
Title is the history of the chain of ownership of a home. This contingency allows you to cancel a deal if there are problems with the title, such as judgments or liens against the property, or if there is someone other than the owner claiming rights to the house.
You may want to have an attorney review the contract before completing the transaction. The lawyer can ensure that nothing has been added or removed from the contract without your knowledge. This is more common in some states than others.
Homeowners who list homes prefer no-contingency contracts, so while some contingencies can protect you as a buyer, use them sparingly if you can.
5. Write a Personal Letter to the Owner of the House for Sale
When you make the offer, including a letter to the owner explaining why you want to buy the house and what it means to you can be a nice touch. A letter to the home’s owner for sale can help your offer stand out from others in a competitive market. Your agent may have a format for these types of letters.
6. Send Your Offer―and Wait
When your offer is ready, your real estate agent will send it. If the owner of the home for sale has already received or is waiting to receive other offers, you may need to wait several days to receive a response. The owner of the house for sale in NY has three possible responses for you: accept it, send you a counteroffer, or reject it.
If the owner of the house for sale accepts or rejects your offer, you now have the final answer and can continue to the next stage: continue with the purchase or continue searching for another house. But if the owner of the house for sale makes a counteroffer, a negotiation begins between you and him.
The experience of your real estate agent is crucial for a negotiation. Talk to your agent about which aspects of your offer you are willing to be flexible on and which are non-negotiable. Approach your negotiation with a respectful and cordial attitude. Remember that the owner of the house for sale wants to sell it, and you want to buy it, but there may have to be some back and forth on each side to reach an agreement.
What if you find yourself in a bidding war?
A bidding war happens when an owner of a home for sale receives multiple offers in a short period. Because buyers are competing with each other, they may offer a higher price, eliminate contingencies, or offer other concessions to make their offers more attractive.
This situation can be difficult for a buyer, especially for a first-time home buyer. You may have to decide quickly about changing the offer or letting the house go. Your agent can advise you on how to avoid bidding wars when possible and how to deal with them wisely when necessary.
8. Sign the Contract
If you and the owner of the home for sale reach an agreement, you will sign a contract. Please read it carefully and make sure you understand the details before signing. The offer process can be exciting and stressful, but take your time with this step. Ask your agent any questions, and find out what is expected of you in the days and weeks ahead.
9. Schedule Your Inspection, Appraisal, and More
Once you’ve signed the contract and your offer is formally accepted, you have to do certain things. You must apply for the loan schedule for the inspection and appraisal if those contingencies are in your contract. If a lawyer is going to review your contract, you will need to schedule that as well.
In the meantime, your lender and the title company will be busy making sure everything is ready for closing day. Together with your real estate agent, they should keep you up to date on what you need to know and do as the process progresses. Learn more about closing the deal on the house.
10. Close the Deal on Your New House
When all contingencies have been met, and your mortgage is ready, you will finally be ready to sign all the documents and close the deal on your new home. Your lender will transfer your funds to your attorney or title company to finalize the purchase. Once that is done, you can collect the keys!
Conclusion: How to make an offer on a house more attractive
Making an offer on a special home can be a very emotional experience. Your agent can advise you on the ups and downs of the process. They understand how to make an offer on a competitive home that is likely to be accepted—and how to quickly move on to looking at other homes if the offer is not accepted. If it doesn’t work, remember that there will be other houses; next time, you will have more experience. But it does work. Let’s celebrate!