If you’re a first-time home buyer then you might find yourself wondering how you to make an offer on a house. A good buyer real estate agent will help you with this by drafting your offer in the form of a sale agreement and will ask if you are pre-approved or pre-qualified for a loan. You will then submit your offer, through your agent, to the buyer, and if the buyer accepts then you’ll need to be ready to sign on the dotted line. It sounds simple, but there still is a little more that goes into the entire process.
Keep in mind that anyone can make an offer on a home. Your real estate agent will draw up the offer, but when they ask you to review it make sure it has all of the elements required of a property purchase offer:
- The address of the property you plan on purchasing
- Your name
- The seller’s name
- Your earnest money amount
- Your offer price
- Any contingencies (seller financing, mortgage discount points, inspection, etc.)
Things to consider before making an offer on a house
Do your research on what type of home you should buy and the housing market surrounding the home at the time. This is one of the most crucial steps when it comes to submitting an offer because it’ll determine whether or not you’re submitting too low of an offer or overpaying for a home.
Make sure you do detailed research on these specific aspects when you’re looking at the properties being sold around the home you’re looking at:
- How long has it been on the market for?
- Is seller financing available?
- Is the property actually comparable to the one you want to buy?
If you notice a property that’s been on the market for a relatively long time — usually more than 3 months — then consider digging deeper on your research to learn why. In a seller’s market, usually home stay on the market for days, not weeks. If you see a home that’s been listed months ago, it could be that the location is undesirable, or the price is too high. It’s worth getting a home inspection too, to ensure you don’t find any serious issues.
Many potential first time home buyers make the mistake of comparing homes that aren’t actually comparable to the home they want to buy. For example, if you’re looking at a 3 bedroom / 1 bathroom home that has been on the market for 90 days, it’s not a great comparison to a 3 / 2 home that was just put on the market or to one that was on the market, went under contract and then went back on the market. All three of these are different in their own ways even though they are 3 bedroom homes in the same area. You can do a Comparable Market Analysis (CMA) to accurately estimate a property’s value based on similar or comparable properties (comps).
Questions to ask before making an offer on a home
There are so many questions you’ll need to ask yourself before making an offer on a home. Purchasing your house is one of the biggest financial decisions of our lives so it is not meant to be taken lightly. Here are just a few questions I encourage you to work through before making an offer on that dreamhome!
- The proposed price (your offer).
- Any concessions you desire the seller to make.
- Any financing contingencies (for example, subject to you being able to obtain a satisfactory mortgage. You can go as far as to state maximum interest rates, specific terms, etc.)
- Any home inspection contingencies (for example, subject to an acceptable whole house inspection report).
- A clear definition of precisely what is to be included in the sale. Don’t simply assume that items such as porch swings, fireplace doors, and refrigerators are included. If there is any question, be specific!
- The amount of earnest money (your deposit) that is being tendered with the offer.
These are just a few questions worth thinking through but as I think of more, I will update this list. Keep in mind throughout your consideration is whether you are in a seller’s market or buyer’s market. Depending on your answer, your requests may or may not be agreed upon by the seller.
How much earnest money do you need put down on a house offer?
To help get your offer accepted, you’ll need to put down earnest money (known as escrow money, or good faith money) that is typically between 1% and 3% of the total home’s price. The more earnest money you put down, the more attractive your offer will look to the seller. This is not to be confused with a down payment, which the earnest money will go towards if the seller accepts your offer.
Your earnest money deposit signals to the seller that you are ready, willing, and able to close on the home. They know you are serious. The money is held in an escrow account until the home is purchased and the deal is complete.
Should you offer over asking price for a home?
At the time of writing this article, the housing market is at an all-time high, making it hard to buy a home during COVID-19. Houses are consistently selling for much more above the listed asking prices and the housing market in general has risen substantially. This is one instance when offering over asking price for a home is something that is necessary for buyers because if they don’t, their offers will be overlooked for other buyers who will ask over asking price.
If the real estate market wasn’t so in-demand, it’d be more common for houses to be sold at or under asking price. The fact that so many people are competing for specific houses in the market at the time of writing this story has led to a bidding war, which has been steadily driving up the prices of houses because the bids are always over the asking prices of the homes they’re bidding on.
Depending on the state you live in, a seller can counter your offer with a higher price that they feel is more appropriate for the home. If you can afford the counter offer then you will most likely be the offer that is accepted to purchase the home. If your offer is accepted, consider hiring an attorney to close the real estate transaction.
Can a seller reject your full price offer?
Absolutely. Sellers have the right to reject any offer they don’t like even if it’s above the listing price of the home they are selling. This is because at the end of the day, the offer and acceptance to buy a home is a contract and both parties have to agree in order for the contract to be valid. Unless they have signed a legal written agreement in some form, sellers don’t have to feel obligated to sell to any specific offer whether it’s the full price of their home or above the price of their home.
Here’s what you need to know about making an offer on a house
Long story short, here’s what you need to know about making an offer on a house you are interested in purchasing.
First, do your research on the housing market around the home you’re looking at, specifically houses that are comparable to your home. Go through a home buyer checklist to make sure you have everything you need. Getting pre-approved for a certain amount of money on a loan will help this process because you’ll know what homes are within your budget and won’t waste time looking at homes that are too expensive.
Next, you’ll need to know how much earnest money you need to put down on the home and have it drawn up in a legal written document by your real estate agent. Depending on the market, you might need to offer more money than normal because it proves to the seller how serious you are as a buyer.
Then, you need to have your buyer real estate agent submit the written offer to the seller and be prepared for rejection even if you submitted the highest offer. Your offer will need to include all of the information that was previously mentioned in the story. Remember, the seller gets to choose the offer they feel most comfortable with and isn’t obligated to choose any specific offer. Last, stay close to your phone and hope the seller deems your offer the most worthy and accepts it. After that, you’ll need to be prepared to sign on the dotted line as soon as possible by staying in close contact with your real estate agent and completing the deal.