How to make an offer on a house

Household 4 min read

After an exhaustive search, you think you’ve found the oneIt’s your dream house that checks all the boxes. A place youd love to call home.  

You’ve done your research, saved money for a down payment and closing costs, and worked closely with a real estate agent. 

So now comes the tricky partMaking the offer.   

Here are some tips to demystify the process and put you in the best position to close the deal.  

Doing your homework  

A bit of detective work can go a long way toward helping you zero in on an offer that could save you money, while reducing the prospect of the sellers rejecting the deal. 

The first step is to assess the market, and more specifically, the demand for homes in the area where you plan to make an offer on a house. Your real estate agent should be able to readily provide you comps, or comparable prices, of similar homes that sold nearby.   

If it’s a hot market where homes are selling at or above asking price, your offer obviously needs to be closer to the asking price than it would be in a cool market where properties are sitting unsold months on end.    

Also, consider how long the house has been on the market or if it has been re-listed. Sellers who have been trying to move their house for a longer period of time are more likely open to an offer below asking price.   

Another piece of key information is to find out how much the seller originally paid for the home. Online real estate services such as ZillowRealtor.com and Trulia typically have property sale histories.  

This information can have varying degrees of value. If the sellers have lived there for decades, then what they originally paid will likely be less relevant. However, sellers that are asking $40,000 more than they paid for a home they bought three years ago might be willing to take lower than asking price knowing they still will pocket a solid gain. For homes that sold within the last 10 years or so, you can also get data on the average annual increase in value in homes in the area to help you can gauge if the asking price is in line with overall market values.  

Only offer what you can afford 

Once you have a pretty solid idea of how much you want to offer for the house, it’s time to match that against the reality of your finances.  

By now, you should know your budget for a down payment and monthly mortgage payments. Conventional wisdom recommends putting down between 10% to 25% of your household budget and setting aside between 3% to 5% percent for closing costs. You should also count on spending up to $1,000 for a basic home appraisal and inspection.   

Ideally, if you can swing a  20% down payment there are some significant financial benefits. Specifically, it helps you avoid paying private mortgage insurance (PMI) and lower your monthly mortgage payments.   

Financial experts warn against stretching your budget beyond what you can realistically pay. In fact, most recommend offering less than you can comfortably spend. Realtor.com suggests thinking about your market in determining whether you should offer a certain percent below asking price or you should assume you’ll have a lot of competition. 

Sweetening the offer 

In some areas, you may be competing in a hyper-hot market or with all-cash offers, in which case going below a seller’s asking price can be risky.   

However, your offer isn’t just about the bottom-line number. Some other elements can come into play to improve your chances of getting the house.  

If your offer is coming in lower than asking price, or you expect stiff competition, think about contingencies, such as one on the sale of your existing home. If a seller has multiple offers, they may lean toward one that isn’t contingent on the sale of the buyer’s home.   

The decision to withdraw this contingency should be carefully made. If you have trouble moving your house, you could end up with two mortgages or a lender that gets cold feet.   

Other contingencies to consider waiving are the standard home inspection or appraisal. These normally take place between signing the agreement and closing on the home. 

Again, waiving these contingencies can be appealing to a seller, but you need to weigh the risk of potentially learning after the fact that the home has some repair issues or doesn’t appraise at what you think it will. 

Writing an offer letter

There’s the formal offer presented as a standard financial transaction with all the fine print. Yet there’s often an opportunity to include a house offer letter that may improve your chances by connecting with the sellers on a more personal level.   

This letter should be written in a conversational tone,  acknowledging that the seller may have lived in a home for years and made memories there. It puts a real person behind a dollar sign and can give you an edge if you’re competing with other potential offers bidding equal or higher than you.   

A good offer letter: 

  • Introduces you and your family to the sellers. Did you grow up in the area? Why are you looking to move there? What do you do for a living? What are your hobbies? Who is in your family? 
  • Mentions specific things about the home and its surroundings that you love. When talking about the home, be sure to make clear that you’ve noticed things they may treasured about it as well (“We’ve long dreamed of having our very own vegetable garden; I so admire the pumpkin patch you planted in your gorgeous backyard!”).  
  • Is Specific: Realtor.com gives the following advice: Paint a picture, particularly if you’re already familiar with the area. “I would love to be able to push my toddler on the tire swing in the backyard and walk her to Second Street Elementary School” is better than “We can’t wait to play outside and walk to school.” 
  • Highlights unique parts of your offer: Are you paying in cash? Offering to waive contingencies? Flexible on your move in times? Be sure to mention it. 
  • Includes a humble thanks: It would be an honor to live in this home” should suffice. 

Prepare for a counter-offer

So the sellers didn’t flat-out reject your offer, but they countered with a higher number or some other changes such as taking out certain contingencies. It’s a good idea to discuss what you are willing to pay and do, prior to a counteroffer landing into your lap. For one thing, there’s often a time limit on when you can get back to the seller. Beyond that, having clear parameters ahead of time can reduce the chances that you make a big decision based on emotion rather than common sense.   

Landing your dream home can be a stressful and emotional experience. By nailing down your offer process you stand a better chance of making that dream come true. 

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