How To Make An Offer On A House: 5 Tips For Making It A Winner

Knowing how to make an offer on a house can make the difference between buying your dream home and losing it to another buyer.

Making an offer is the most significant part of the home buying process because it starts the negotiation between you and the seller and is what your mortgage loan is based on (if you finance the property).

Making An Offer On A House: What You Need To Know

The offer letter is the most significant step in making an offer on a house. This purchase proposal includes essential details, including:

• Your intent to purchase a house at a specific address
• The purchase price you’re offering
• The amount of earnest money you promise
• How you will pay for it (cash or financing)
• Your special requests, such as a home sale or inspection contingency

Putting an offer on a house doesn't cost anything, but if the seller accepts your offer, you must put up the promised earnest money (usually 2% – 3% of the purchase price).

However, this isn't the cost of making an offer on a house. Instead, it's an exchange of funds, so the seller takes the house off the market while you finalize financing to close the purchase.

If the seller accepts your offer, it becomes a legally binding contract after both parties sign it. Your buyer's agent and the seller's agent will handle the details of executing the agreement.

Can You Back Out Of An Offer?

Putting an offer on a house is a big decision, so it’s natural to wonder if you can back out of an offer after making it. The key is whether the seller accepted the offer yet. If the seller is still thinking about the offer, there’s no harm in rescinding your offer.

However, it gets more complicated if the seller accepts your offer and all parties sign the contract.

Buyers can back out of the contract, but there could be consequences depending on the contract terms. Working with a reputable real estate attorney when creating the offer or contract is essential to protect you in all situations.

For example, you put in an offer on a house, and the seller accepts it. All parties signed the contract, and you're scheduled to close within 45 days.

Halfway through the process, you lose the offer you had on your existing house, but you didn't put a house sale or financing contingency in the purchase contract.

If you back out of the contract because you can't get financing without selling your house, you risk losing your earnest money, as the seller can keep it or potentially sue you.

Important Things To Do Before Making An Offer On A House

Knowing how to make an offer on a house is vital for a buyer, but there are important things to do before starting.

Get Preapproved For A Mortgage

Getting preapproved for a mortgage is one of the first steps you must take (unless you are paying cash for your new home). A mortgage preapproval tells you how much lenders will let you borrow to buy a house. It also tells sellers that you are a qualified buyer, which may increase your chances of them accepting your offer.

To get preapproved, you must provide the lender with your financial documents proving you qualify. The preapproval focuses on your financial profile, not the house, since you don't have one yet. With a preapproval, you show you can afford the home, and lenders believe you are a reasonable financial risk.

Connect With A Real Estate Agent

Before looking for the right house, consider finding a reputable real estate agent. It doesn't cost buyers anything to hire a real estate agent, and any amount it adds to the sales price to cover the seller's cost is often well worth it.

Real estate agents are familiar with the housing market and the nuances of the area you want to live. They get to know you as a buyer and what you need/want and help identify potential areas of concern so you don't make an offer on a house you shouldn't purchase.

Research The Neighborhood

Buying a house means buying into a neighborhood. You could find the perfect house but hate the neighborhood, its environment, rules or proximity to what you need.

Take the time to get out, talk to neighbors and evaluate the following factors:

• Traffic
• Parking
• Amenities
• Quality of the school district
• Walkability
• Commute and accessibility
• The individual laws of the municipality

5 Tips For Making An Offer On A House Successful

When you’re ready to make an offer on a house, consider these five helpful tips:

Make A Reasonable Offer

No matter how much you love a house, a reasonable offer will get you further than a far-fetched offer. First, ensure the offer fits within your budget. Refer to your preapproval letter to ensure you don't overpromise.

Next, compare your offer to the current market. Sales prices are public record; just be sure to focus on homes sold within the local area, especially the same block or neighborhood.

Of course, also consider your desire to have the house. While you shouldn't overpay for a house just because you love it, your emotions can play a minor role.

Consider Making A Cash Offer

If you have the capital, you may have an easier time getting your offer accepted if you make a cash offer. Sellers prefer cash buyers because they don't have to worry about banks, underwriting rules and hiccups in the financing process.

Of course, there are pros and cons when buying a house with cash.

Pros

• Avoid paying interest and fees
• May have an advantage over other buyers
• Close on the purchase faster
• Have immediate equity

Cons

• May deplete your savings
• Has opportunity cost of other possibly higher return investments
• No opportunity for tax deductions on mortgage interest

Offer More Than The Asking Price

If you're buying a house in a seller's market, you'll have more competition. This may increase the asking price, and in some situations, you may need to offer more than the seller asks.

Remember to stick within your budget and the amount you're preapproved to spend.

If this is a short-term purchase, you may not see a return on your investment if you overpay for the house. However, it may be worth it if it's a long-term investment, as you have more time to recoup it.

Making A Contingent Offer

Contingent offers give buyers a way out of the contract. You’ll find some common contingencies listed below.

Sellers try to minimize the number of contingencies and may accept an offer for a lower dollar amount if it means no contingencies.

It’s important to balance protecting your interest in the contract and winning the offer. Talk to your real estate agent about the common practices in the area to determine what other buyers may offer a seller.

Know When To Offer Less Than The Asking Price

Offering less than the asking price is possible but only works in the right situation. Avoid making the seller feel like you are trying to lowball them, as that will only upset sellers.

Instead, have reasons why you're offering less than the asking price. For example, an upcoming construction or a change in the environment could decrease values and warrant a lower offer.

You may also consider a lower offer if you find comparable sales around the subject property that sold for less than the seller asked.

How To Make An Offer On A House

Now that you know what you must do before making an offer on the house, it's time to learn how to make an offer that sticks.

1. Determine The Offer Amount

Do your homework and determine the best offer amount. Base your decision on your preapproval, personal budget, comparable listings and the home's condition. Leave wiggle room in the offer should the seller make a counteroffer.

2. Set Your Contingencies

Consider which contingencies are important to you to protect your investment in the property. Common contingencies include:

• Home inspection
• Appraisal
• Home sale
• Funding

3. Choose How Much Earnest Money You’ll Offer

Earnest money tells the seller you are serious about your offer and willing to risk the money you put down.

An escrow company holds the funds until both parties fulfill their part of the contract, or one party violates it. If you close on the house, the earnest money is deducted from the cash you need at closing.

The average buyer promises 1% – 3% of the sales price, but ask your real estate agent what’s normal for the area you are looking.

4. Submit An Offer Letter

Once you've determined the price, contingencies and earnest money deposit, you can submit your offer letter.

Your letter must include all the details of what you're offering the seller so they can decide how to proceed. Your buyer's agent will handle drafting the letter and any communication with the sellers after you submit it.

5. Negotiate The Price Of Your Home

Sellers have three options when you give them an offer. They aren't obligated to accept the offer and can reject it without room for negotiation. They can also accept the offer as is or make a counteroffer.

If they make a counteroffer, compare the offer to what you wanted and what you can spend, especially if they ask for a higher price. Sometimes, a counteroffer has more to do with contingencies or conditions in the contract than the dollar amount.

Once all parties agree on the sale terms, all parties sign the purchase contract, and you have a legally binding agreement.

The Bottom Line: Knowing How To Make An Offer On A House Is Key

Knowing how to make an offer on a house is the key to winning the bid on your dream home. You can make a successful offer after determining how much you can afford, the contingencies you need and ensuring you’re offering a fair price for the home.

Be sure you know the type of market you're in, whether buyers (more room for negotiations for buyers) or sellers (tougher for buyers to compete), and what other homes are selling for in the area.

Consider the earnest money deposit and how many contingencies you need to purchase the home successfully.

When you’re ready to start your home search, start the preapproval process so you stand out to sellers and win the bid on your dream home.