How to Make an Offer On a Home
Putting an offer in on the home you want to buy is often a nerve-wracking and emotional process. It requires expert understanding of the market in general and of the specific property to determine what kind of offer is most likely to seal the deal.
This is where a real estate agent can add a lot of value to your home buying experience. Finding someone whose advice you can trust is so important. They can serve as the professional with experience and knowledge of how much to offer and when. Should you offer exactly what the seller asked for right now? Or should you go low and offer more later?
A great real estate agent can also act as the objective third party to help you make a rational decision about your offer instead of a charged, emotional one. They can also pull up actual data and work with you to create an offer based on this information. (Again, your agent can keep things rational instead of going by feel, intuition, or emotion.)
Here’s how you and your agent can work together and come up with the right offer to put on a house — including determining when it might make sense to go as low as possible to get the best price.
Learn the Process of Making an Offer
There are a few steps when you’re ready to make an offer on a house. First, you’ll submit your written offer to a seller. It will include a lot of information, but your real estate agent can help you. They should have the required forms both for the city and state in which the property is located.
After your offer is submitted, the seller has a short time frame in which to evaluate your offer and decide what to do with it. Sellers are usually required to respond within 48 hours of receiving an offer from a buyer.
They can either accept, reject, or counter your offer. If it’s accepted, the house will go into contract and you’ll begin the closing process. If it’s rejected, you can make a completely new offer. Otherwise, you may need to move on and keep going with your home search.
The seller can also counter. That means they return with adjustments made to your original offer, like a higher price, removal of some contingencies (like repairs), or other requests. At this point, the ball is back in your court.
You can accept the seller’s counteroffer. Or you can counter again. This process continues until an offer is eventually accepted or rejected.
Determine How Much You’ll Offer
Your realtor should be able to run a comparative market analysis, or CMA, to give you a starting point when determining how much to offer on a house. A CMA pulls data about nearby properties with similar or the same characteristics as the home you want to buy. This allows you to compare properties to determine the fair market value of the home you are looking at purchasing.
You can base your offer on this information, because it shows you what market prices look like. (Remember to look at what the homes actually sold for, not just at the prices they were listed at.) And check out how many days this specific house has been on the market. If it’s been sitting for a while, that may indicate that you can go lower on your offer.
You should also consider the wider market and how it has been performing. Is it a buyer’s market or a seller’s market? In a buyer’s market, you’ll see a lot of inventory but little interest.
The principles of supply and demand say that buyers have the power when there are many homes on the market but few are selling. Sellers need to compete with each other to find buyers for their properties. A buyer’s market is typically the best time to come in with a lower offer.
The inverse is also true. When there are few homes on the market but a lot of people wanting to buy real estate, the sellers maintain most of the power. Buyers must compete with other buyers, in that case. You may need to offer even more than what the seller asks if you want your offer to be accepted.
Both a buyer’s and a seller’s market will impact how you make an offer on a house. In more neutral markets, there’s less competition amongst both buyers and sellers. You may be able to rely more on comparative data and fair market values to inform your decision on how much to offer, rather than taking advantage of sellers competing — or trying to outpace your own competition as a buyer.
Regardless of how much you decide to offer, you should always include something called “earnest money.” This is similar to a security deposit – it is an amount you put down with your offer to show you’re a serious buyer and you’re making the offer in good faith.
When It Makes Sense to Offer More — or Less
Again, lots of competition amongst buyers means you may need to offer more on a house. Consider the situation from the seller’s point of view: if you received 5 offers on your home, would you choose the one that offered what you asked? Or would you go with the offer that was even more than you expected to sell your home for?
The market itself doesn’t necessarily have to be competitive for you to face this situation, either. A particular property could attract many buyers, and you may need to offer more than asking price if you want a better chance of having your offer accepted.
Offering more makes sense when the price of the home is still within your budget and when you are set on buying a particular property. It can also help avoid a bidding war if other buyers only offer what the seller asked.
There’s a flip side, too. As we discussed above, in slow real estate markets when there’s more inventory than interest from buyers, people who are buying can take advantage.
Other, specific details about a property can inform your decision to go low — or swing for the fences. You may need to offer more if:
- A property is highly desirable (either thanks to location or other advantages that other buyers want and are willing to pay for).
- Multiple offers are on the table.
- The seller isn’t motivated (they don’t need to sell, and can take their time to find the best buyer that will offer the most money).
And you could get away with offering less than the asking price if:
- You’re buying in cash and not financing the purchase of the home.
- You’re financing, but got pre-approval from a lender (so the seller knows the sale is more likely to go all the way through).
- Your offer doesn’t come with any contingencies, like needing to sell your existing home before you buy a new one, or you’re willing to buy the property as-is.
- The sellers are motivated to get rid of the property as soon as possible. They may need to relocate for a job or move before school starts. They could be underwater on their mortgage and want to cut their losses, or maybe they’re in the middle of a divorce.
Just be careful not to completely lowball a seller from the very beginning. They’re human, too. An offer that is far below the fair market price for the property may cause the seller to take offense — and they may reject any offer you make as a result.
At the end of the day, you need to work closely with your real estate agent to determine how to make an offer on a house you want to buy. There are opportunities to go low and you should take advantage when you can.
But that’s not always appropriate. The right thing to do may be to simply offer what’s truly fair based on what the home is worth and what comparative properties are selling for. And sometimes, if you need to beat out many other buyers and can afford to do so, you might even have to offer more than what the seller initially asked. Happy shopping!