Key Takeaways
- A home offer is a formal, legal proposal, not just an expression of interest
- Strong offers don’t focus on price alone, they balance cost, terms and flexibility
- Preparation before you offer can significantly improve your chances of acceptance
- Understanding each step helps reduce stress and costly mistakes
What Does Making an Offer on a House Actually Mean?
While you may think that making an offer on a house is as simple as telling the seller how much you’re willing to pay, there’s more to the process than buyers may realize.
Making an offer on a house means that you are submitting a written proposal that outlines not only the price you are willing to pay for the house, but also the terms under which you’re willing to buy. Proposals may include things like repair requests or offers to be more lenient on seller move out timelines in order to sweeten the deal.
Once a seller accepts your offer, both parties are typically under contract and legally bound to move forward, subject to any contingencies included in the agreement.
Because an offer is legally meaningful, it’s extremely important to understand what you’re agreeing to before you submit it. For example, once an offer is accepted, you may be required to submit earnest money and begin a home inspection within a specific timeframe.
Four Steps to Preparing Your Offer
Once you find a house you love, it’s easy to feel pressure to submit an offer right away. While that temptation is understandable, taking time to properly prepare your offer could end up being the make or break when it comes to the seller’s acceptance. This stage is typically handled in close partnership with your real estate agent, who helps guide strategy, creates and submits paperwork to the seller and leads communication with their agent.
1. Find a real estate agent you trust
If you’ve chosen to undergo homebuying in partnership with a real estate agent, it’s especially important by the offer stage that you’ve found one who you trust to not only have deep expertise of the market, but who is also able to ensure that your offer is as beneficial to you as possible. Working with an agent is especially helpful for first-time buyers or anyone unfamiliar with local market norms.
Before you make an offer, an agent can help you evaluate similar homes, analyze comparable sales in the area, understand local market conditions and advise on offer strategy. Once you’re aligned and ready to submit an offer, they usually handle drafting and submitting the paperwork and then negotiating terms on your behalf.
2. Get preapproved for a mortgage
When you begin shopping for a mortgage, you can get prequalified or preapproved. A prequalification is usually a quick estimate based on self-reported information, while a preapproval is the result of a more in-depth process where lenders review your income, assets, credit and documentation to determine how much they are willing to lend you.
While prequalifications provide helpful guidance, preapprovals show sellers that you’re a serious candidate that a lender has deemed credible and more likely to fulfill their financial obligations when it comes to repaying their loan. Understanding how factors like credit score and income affect mortgage approval can also help you gauge how strong your offer may appear to a seller. In competitive markets, sellers often view preapproved buyers as lower risk and more motivated than buyers who are only prequalified.
3. Understand what you can comfortably afford
If you meet certain criteria, it’s not uncommon for lenders to approve you for more overall credit than you may have anticipated. While tempting, it’s important to realize that the maximum loan amount granted to you isn’t necessarily what you should finance.
Before making an offer, it’s important to have a thorough understanding of what your monthly mortgage payment will be and whether that figure aligns with your other financial goals. Remaining flexible but firm is a good rule of thumb and running different scenarios through a mortgage calculator can help you understand what payment range feels comfortable before committing to an offer. Many buyers find it helpful to leave room for unexpected repairs, routine maintenance or changes to future income.
4. Research the local market
Broadly understanding whether you are in a buyer’s market or a seller’s market is an important first stage of research that will help shape your overall offer strategy. At a more granular level, your real estate agent should provide you with comparative data that shows you what similar homes in the area have recently sold for. They can also help interpret pricing trends and competition levels so your offer aligns with what sellers in your area are actually accepting. Paying attention to things like how long homes are staying on the market, whether listings are selling above asking price and how many offers sellers typically receive are also helpful when crafting a home offer.
If you are still early in your search, researching homes for sale can help you understand pricing trends and competition in your target area.
How Much Should You Offer on a House?
There is no single right answer to how much you should offer, but several factors can guide your decision.
The listing price is a starting point, but not always a true reflection of market value. Buyer’s agents often analyze comparable sales and recent price trends to help buyers decide whether a home is priced accurately and how aggressive an offer may need to be. The home’s condition, recent comparable sales, how long the home has been listed and current buyer demand all also play a role in determining a competitive offer.
For example, a home that has been listed for several months that has undergone multiple price cuts will likely give a buyer more negotiating power, but may require sizable repairs that you can request be fixed in exchange for a lower overall offer price.
Offering below asking price may make sense if the home has been on the market for a long time or needs significant repairs, but in competitive markets buyers should come to the table with the expectation that they may need to offer above asking price to stand out as a true contender.
What Goes Into a Home Offer?
A home offer includes more than just the purchase price. In most cases, your buyer’s agent is the one who prepares and submits the formal written offer on your behalf, using the terms you discuss together. They ensure the offer is completed correctly, includes required disclosures and is delivered to the seller and their agent.
Offer price
This is the amount you are proposing to pay for the home. It should reflect both market conditions, what you believe the home is worth and what you can comfortably afford if your offer is accepted.
Earnest money deposit
Earnest money is a deposit that shows you are serious about buying the home. It is typically held in escrow and applied toward your closing costs if the sale goes through. Earnest money amounts often range from about 1 to 3 percent of the purchase price, though this can vary by market. When planning, buyers should be aware of this upfront commitment, along with their planned down payment and closing costs. In many cases, earnest money is refundable if you back out under a valid contingency (like a failed inspection), but it may be forfeited if you walk away without a covered reason.
Contingencies
Contingencies are conditions that must be met for the sale to move forward. Common contingencies include financing, inspection, and appraisal contingencies. A financing contingency allows you to back out if your mortgage is not approved, an inspection contingency gives you the option to renegotiate or walk away if the home inspection reveals major issues and appraisal contingencies protect you if the home appraises for less than the agreed upon price.
While waiving contingencies can make an offer more attractive, it also increases risk for the buyer. For example, waiving an inspection contingency could leave you responsible for costly repairs that are discovered after closing.
Closing timeline and possession
Sellers may value flexibility on closing dates or possession timing, especially if they need time to find a new home. In some situations, a seller may prefer an offer with a flexible closing date or a short rent-back period over a slightly higher price. Being flexible here can sometimes strengthen your offer without increasing the price.
How to Make a Strong Offer Without Overpaying
In many cases, improving the terms of your offer can be just as effective as increasing the price. Examples include offering a stronger earnest money deposit, shortening contingency timelines or accommodating the seller’s preferred closing date.
Some buyers also consider escalation clauses, which automatically increase an offer up to a set limit if competing offers come in. While escalation clauses can be attractive in a competitive market, they should be used carefully and you should ensure that you can afford adjusted monthly payments in the event your increased offer is accepted. Buyers should also consider how an escalated price might affect the appraisal and whether they are able to cover a potential appraisal gap.
What Happens After You Submit an Offer?
After you submit your offer, the seller can accept it, reject it or respond with a counteroffer.
If they choose to counteroffer, it’s important to understand that it’s common for negotiations to involve more than one counteroffer as both sides work toward terms that feel acceptable. Counteroffers may adjust the price, closing timeline, contingencies or other terms. While negotiating, it’s important to keep checking in on how proposed changes will impact your monthly costs so you can remain comfortably within your budget.
Once your offer is accepted, the home is typically considered under contract. This does not mean everything is final, but it does mean both sides have agreed to move forward under the outlined terms.
Common Mistakes Buyers Make When Making an Offer
Buying a home is an emotional process for many buyers, but it’s crucial that you don’t let feelings take over the process and lead to costly outcomes. Some of the most common mistakes buyers make when submitting an offer on a home they love include waiving inspections without fully understanding the risks and offering more than the home is likely to appraise for. For example, buyers sometimes agree to a price that the appraisal does not support, which can lead to unexpected out-of-pocket costs or a deal falling apart.
It is also important to decide in advance what your walk-away point is so you’re prepared to abandon the process and move on to another property if negotiations don’t go the way you expected.
Frequently Asked Questions
- Can I make an offer without a real estate agent? Yes, it is possible to make an offer without an agent, but the process can be more complex. A buyer’s agent typically helps with pricing strategy, reviewing comparable sales, drafting the offer paperwork, negotiating terms and managing deadlines once an offer is submitted. Buyers without representation should be prepared to handle these facets of the process and are expected to understand each step in the process on their own.
- How long does a seller have to respond to an offer? Response times vary, but sellers typically reply within a few days. Your offer may include an expiration date that sets a deadline for the seller’s response.
- Can I back out after making an offer? Buyers can usually back out during the contingency period without losing their earnest money, as long as they follow the terms of the contract.
- What happens if my offer is rejected? If your offer is rejected, you can choose to submit a new offer, move on to another home or wait to see if the seller reconsiders later.
