How to Make an Offer on a House

Knowing how to make an offer on a house prepares you to jump quickly when you find the one. While there’s no guarantee that an offer will be accepted, making a great offer increases the odds that yours will get the green light. This article covers everything you need to know about making a real estate offer.

put offer for house

Step 1: Get Preapproved

Putting an offer on a house is nearly impossible unless you’re preapproved for a mortgage. Sellers prefer preapproved buyers because they’re “the real deal.” Many real estate agents won’t work with buyers without preapproval letters.

Before you even begin house hunting, go through the preapproval process to learn your borrowing power. The preapproval process is like a “mini” mortgage approval. Here’s what lenders look at:

  • Credit score
  • Credit history
  • Debt-to-income ratio (DTI)
  • Assets
  • Income verification
  • Pay stubs from the past 30 days
  • Tax returns from the past two years

Mortgage preapproval letters are generally good for 90 to 120 days. You can get your letter renewed if you don’t put an offer on a house in that timespan.

Just make sure you ask for a preapproval letter instead of a prequalification letter. A speedier version of preapproval, prequalification is considered less reliable because it doesn’t include a credit check

With your preapproval letter in hand, find a real estate agent covering the area you want to buy in.

Step 2: Decide the Size of Your Home Offer

Before making an offer to the seller, decide how much you’d like to spend on a home. The temperature of the local market plays a big role in determining how much boldness you should have when putting in an offer on a house. Use these factors to when strategizing:

  • Length of Time on the Market: A listing that’s been lingering is a low-competition home that leaves you with negotiating power.
  • Length of Time the Owner Has Stayed: Owners who live in homes for long periods of time often have emotional attachments that stop them from taking low offers. These sellers are also more selective about buyers.
  • Neighborhood Desirability: Spend time collecting stats on the pros and cons of a neighborhood’s location, amenities, and resources.
  • Recent Home Sales: What have other homes gone for recently? Recent sales can guide you toward an appropriate asking price.

Ultimately, your preapproval letter will serve as a guardrail for how high you can go when making offers. What’s more, the maximum amount you can afford is not always what’s best for your budget and personal financial goals. You don’t have to offer the maximum you’ve been approved for when submitting an offer on a house. Stick to the budget you’re comfortable with!

A Note on Real Estate “Comps”

Ask your agent to show you home “comps” before you decide on an offer amount. Comps help you determine a home’s value by comparing it to nearly identical properties that have recently sold in the area. A comparable home is a home with the same square footage, number of bedrooms, number of bathrooms, features, and yard size in an adjacent or nearby neighborhood.

In addition to helping you formulate an offer, a comp shows the seller that your offer is reasonable.

Step 3: Determine Your Earnest Money Offer

An earnest money deposit is the amount of cash you’re putting up when submitting an offer on a house. If you back out, this money will be forfeited to the seller in most cases. Earnest money is applied to your down payment if you close.

Most earnest money deposits total 1% to 2% of a home’s cost.

Step 4: Consider Contingencies

Buyers use contingencies to protect themselves in real estate contracts. These clauses give you the right to back out from an offer without losing your earnest money deposit or being sued. Consider adding these contingencies to your home offer:

  • A home inspection contingency allows you to back out or renegotiate if the inspection reveals serious issues.
  • An appraisal contingency allows you to back out or renegotiate if the home’s appraised value exceeds your offer.
  • A title contingency lets you back out of an offer if there’s an issue with the property’s title.
  • If you currently own a home you need to sell, a home sale contingency allows you to hold off on closing until your current home sells.
  • A financing contingency lets you back out if your mortgage approval falls through.

Some buyers waive these contingencies to make their offers more competitive. However, they take on great risk when they do this!

You might also request seller concessions. Concessions are portions of closing costs paid by the seller to make a transaction more affordable for the buyer. 

Step 5: Submit an Offer on a House in Writing

If you’re a first time buyer making an offer, this will be your first time writing up a document known as an “offer to purchase real estate.” The good news is that your real estate agent will do most of the work. Home offers need to contain the follow parts:

  • The seller’s name
  • Name of buyer/anyone on the title
  • Property address
  • Purchase price (offer amount)
  • Down payment amount
  • Earnest money deposit amount
  • Requested contingencies
  • Requested seller concessions
  • List of closing costs and fees
  • Requested move-in dates
  • Response deadline

Remember that your offer may need to follow state-specific rules based on where you live. Hire a real estate attorney to review the offer to ensure its validity before submitting it to the seller through your real estate agent.

Step 6: Negotiate Your Offer

It’s possible that the seller will accept your offer. In this case, you’ll sign the contract and submit an earnest money deposit. Schedule the home inspection as soon as you know your offer is accepted.

If the seller makes a counteroffer, you’ll need to work through your agent to negotiate price and terms. This generally includes lots of back-and-forth conversation between buyer, seller, and agents. It’s also a time for soul searching to decide how much you really want a home.

If the seller rejects your offer, you can decide to either move on or restructure your offer. Some sellers are quick to reject offers because they’ve inflated the value of a home in their mind. It’s up to you to decide if you want a home enough to make your offer reflect that inflated value. Work with your agent to restructure an offer to appeal to the seller’s desires if you want to try again.

How Do You Make a Backup Offer on a Home?

If someone has already made an offer on a home you want, the seller may accept backup offers that will be honored if the original offer falls through. A backup offer is a legally binding contract that makes you the next buyer if the first buyer backs out. The process is nearly identical to making a “first” offer.

An earnest money deposit is required to make a backup offer. If the original offer is successful, you’ll be refunded when you’re released from the contract.

Be aware that it’s not uncommon for sellers to accept multiple backup offers in ultra-hot markets. These offers will be honored in the order that they are accepted.

Step 7: Finalize the Contract

Once an offer is accepted, both parties need to provide their signatures. Your signed contract will then be forwarded to your chosen lender to get the mortgage process moving. Your lender will order an appraisal right away.

If the appraisal comes in lower than the selling price, this is what’s known as an appraisal gap. Your lender won’t allow the mortgage to go through if there’s an appraisal gap.

You have two choices when an appraisal comes in too low. The first is to negotiate a lower price with the seller. The second is to cover the difference with your own cash.

Consider asking your lender to order a second appraisal before making a decision.

It’s Okay to Go Low When Making Offer on House?

It’s appropriate to make a “lowball” offer on a home if local data on sales trends and comparable sale prices can support your offer. Making an offer lower than a home’s listing price is a standard practice. However, buyers should be prepared for rejections or counteroffers when they do this.

Checking Back on a Rejected Offer

Did you get an offer rejected? Put that property on the back burner while you search for another home. If the listing lingers for several months, the seller may be humbled enough by that point to entertain your previously rejected offer.