How to make an offer on a house

Before you start the hunt for your dream home, there are several things you can do to prepare. Learning what to expect when buying a house and assessing your budget, so you know exactly how much house you can afford, will put you in a better position when you get started. Here’s what to know, and what to do, so that you’ll be able to act fast with a successful offer when you find the house that’s “the one.”

What to do before making an offer

• Know your budget: Drawing up a budget is crucial to determine what you can comfortably afford in a home. Bankrate’s home affordability calculator can help you find an appropriate price range for your income.
• Save for a down payment: You’ll need enough in savings and liquid assets to put a down payment on the home you’re buying. At least 20 percent of the purchase price will save you from having to pay for private mortgage insurance, but that can be a hefty sum: On a $350,000 home, 20 percent comes to $70,000. Many loan types allow much smaller down payments — just keep in mind that the more you pay upfront, the less you have to borrow, so it’s worth it in the long run to put down as much as you are able.
• Find an agent: Recommendations from friends, family and colleagues can be good resources for finding a real estate agent. Your agent will be a critical part of your homebuying process, so do some research and find someone you feel comfortable working alongside.
• Get a preapproval: Getting preapproved for a mortgage lets you know how much you will likely be able to borrow, so you can narrow down your search to the appropriate price range. Don’t confuse preapproval with actual approval, though: You’ll still have to go through the full application process when you’re ready to commit.
• Decide where to live: Try to remain flexible where possible. With permanent remote work becoming a reality for many, living within commuting distance of a big-city office might no longer be a requirement — you may want to consider an area with a lower cost of living instead.

Submitting an offer on a house

If you’ve found your dream home, you should do everything you can to make your offer stand out — especially in a competitive market where a home may garner multiple offers. This can include making your highest offer first, putting as much down as possible, and forsaking any contingencies or conditions you feel comfortable leaving out.

When you’re preparing to submit an offer, work with your real estate agent to evaluate comparable local listings, also known as comps, to determine what price to start with. Typically, the more competitive the market, the closer to the asking price you should bid. Offering over the asking price may be necessary in some cases, so let your agent guide the way here: They will know the current temperature of your local market.

In some markets, you may have to act fast. Again, your agent will know how important speed is in your area and can provide insight into how much time you have to think things over. If a listing has been on the market for a while and isn’t moving, you might have a little more leeway to drive a hard bargain.

Finally, if you are lucky enough to be able to pay for the home in full without financing, that will put you at a big advantage. All-cash deals, which don’t require a mortgage, make a sale more efficient and are very attractive to sellers. Sometimes sellers will even accept a lower all-cash offer than a higher financed one, because it streamlines the transaction, making it more of a sure thing and avoiding the need to wait on the underwriting process.

What’s included in an offer?

A formal, written offer includes much more than just the price you’re willing to pay for the property. Here are some of the other items a home offer should include, or at least allude to (some will be spelled out in detail in the contract):

• Address and description: Self-explanatory, but it’s legally important to document what you’re making the offer on.
• Earnest money: Earnest money is a small deposit you put down when you go into contract — usually 1 percent of the purchase price, which then gets credited toward the purchase at closing — to show that you’re making a good-faith offer. Depending on the terms of your contract, it may not be refundable if you back out of the deal.
• Contingencies: These are conditions, spelled out in your contract, that must be met in order for the deal to close. An inspection contingency, allowing you to have the property professionally inspected for damage or safety issues, is a common example.
• Clear title stipulation: A mandate that the seller provides a clear title to the property — meaning, they own it free and clear and have the legal right to sell it.
• Closing cost details: You’ll want to spell out the seller’s participation in closing costs and other fees, as well as how certain taxes and expenses will be divided between the buyer and the seller at closing. Closing costs are a key part of negotiations, and sellers will sometimes cover some of a buyer’s closing costs to sweeten the deal.
• Expiration date: The date and time of the offer’s expiration and projected closing date. You don’t want to wait forever, after all. (In a situation where the seller has received multiple offers, you may be asked to submit your “highest and best” offer by a certain deadline.)

What happens after you submit?

Waiting for a response from the seller is probably the most tense part of the process. If the seller declines or issues a counter-offer, and you still want to buy the home, you’ll need to come up with a more attractive offer and resubmit. It’s important to make sure you can still comfortably afford your counter-offer. If the seller wants more than you can reasonably pay, you need to be ready to continue your home search. The same advice applies if you find yourself in a bidding war: Be sure to keep your cool and not blow your budget.

Even if the seller accepts your offer, it’s not a deal until it’s in writing — specifically, in a purchase and sale agreement, a contract that makes the deal legally binding. To ensure you get to this step, avoid turning off the seller with too many demands. Common deal-breakers can include writing in too many contingencies, asking for personal property items to be included and insisting upon a too-fast closing date. Work with your real estate agent to craft a contract that shows you’re willing to compromise. Once the contract is signed by all parties, you’re ready to move on to the next steps in the homebuying process, like finalizing your financing and scheduling a home inspection.

What if I need to back out of an offer?

If you start having second thoughts or regrets once a deal has been struck, and you want to back out of the deal, what options do you have?

Well, if the offer has just been verbally accepted by the seller, it’s not too big of a deal to rescind it. But if it’s been formalized in a signed purchase agreement, things can get complicated. A lot depends on what kind of contingencies are built into the contract: Speak to a lawyer for situation-specific clarity on contract questions. Generally, once earnest money has been exchanged, you risk losing that deposit if you back out.

“There are a few opportunities during the buying process when a contract can terminate and the buyer is not penalized,” says Casey Moynihan, broker and owner of Prime Rentals & Real Estate in Nashville. Examples, she says, include: “If you have an inspection contingency and something comes up in the inspection that can’t be resolved between buyers and sellers, if you have an appraisal contingency and the appraisal comes back short on the home’s value, or if you have a financing contingency and the bank can’t get your loan approved.”

Next steps in making an offer on a house

A local real estate agent can help guide you in how to put an offer on a house. Agents are well-versed in their market’s conditions and property values and can help you navigate the process successfully.

Once your offer is accepted, and the contract signed, it’s time to get ready for the closing. The span between your offer being accepted and actually finalizing the transaction can take a couple of months. At the closing, you’ll sign a mountain of paperwork and write a bunch of checks to cover your closing costs. At the end, you’ll get the keys and finally take possession of your new home.

FAQs

• Can I back out of an offer on a house?

  It depends. Verbal offers can be reneged fairly easily, but if you have a signed contract, you may need a lawyer to get involved if you want to back out. Depending on the terms and contingencies of your contract, you may lose your earnest money deposit or suffer penalties.
  

• Do you need a real estate agent to make an offer?

  You do not necessarily need a real estate agent to buy a home, no. But one is still highly recommended due to the complex nature of real estate deals. An agent is a licensed professional who can provide invaluable guidance and expertise; without one, you may end up offering more than you need to, giving up more control than you should, or agreeing to contract terms that are not advantageous.