How to make an offer on a house

Smiling parents looking at son using digital tablet in living room as they talk about how to make an offer on a house Image: Smiling parents looking at son using digital tablet in living room as they talk about how to make an offer on a house

In a Nutshell

If you’re ready to make an offer on a house, you’ll want to follow some basic steps, including applying for prequalification, figuring out financial details such as price and contingencies you can build into the contract, as well as having your real estate agent pull data on comparable sales.

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When you want to buy a home, you let the seller know by making an offer.

While your real estate agent will likely draft the technical details of your offer, submit it and negotiate on your behalf when the seller responds, you’ll have decisions to make about things like how much you want to spend and the terms of your home offer.

We’ll walk you through some steps to help you prepare for how to make an offer on a house.



Step 1: Get prequalified

Prequalification is the process of a lender looking at your financial information and deciding how large a loan it would likely offer you if you apply and meet its eligibility requirements.

The lender considers factors such as how much you earn, what debts you owe and your credit reports, then gives an estimate of the loan amount you may qualify for. The lender often issues you a letter stating its estimate.

A prequalification letter isn’t a promise to extend you a loan, and you may be offered different terms after you submit a formal application. But it’s still useful because it gives you an idea of how much you may be able to spend. And showing the letter to sellers lets them know whether you can realistically borrow enough to buy their home.

Some mortgage lenders also offer preapproval, which typically involves a more formal and detailed vetting of your financials. You also may have to agree to a hard credit inquiry, but a preapproval letter could help you if you’re in a competitive housing market.       

A preapproval letter may come with an expiration date of 30 to 60 days, so it makes sense to get a preapproval letter when you’re close to making an offer.

Step 2: Find a house that’s a good fit for you

Search for a house you’re happy with that fits within your budget. Even if the price is within the amount you’re prequalified for, make sure you’re confident you can afford the down payment and mortgage payments, as well as expenses like property taxes and utilities.

Make a list of features you’re looking for in a home. These might include the number and size of rooms, materials used to construct the home, amenities like fireplaces and built-in storage, whether it has a garage, and whether it has a front yard or backyard. You may also want to consider the neighborhood, proximity to schools and the reputation of the school district.

Think about which items on your list are “must-haves” and which you might compromise on. For example, maybe you need to find a home with at least three bedrooms, but you could settle on a house that doesn’t have a finished basement if it has the other features you want.

Step 3: Ask your real estate agent to show you comparable sales

Once you’ve zeroed in on a home, your real estate agent can show you comparable sales, or “comps.” These are nearby home sales that are close matches for the home you’re considering. Looking at other homes in the neighborhood that were sold within the past few months and that are in about the same condition, with comparable square feet and amenities, can help you guess how much the home you’re interested in might ultimately sell for.

If the comps suggest that you’re dealing with a “seller’s market,” where multiple buyers are bidding up the price of homes, keep in mind that the home you want might receive several offers well above the asking price. Think about the highest amount you’d be willing to pay if you end up bidding against someone else.

Step 4: Decide on the financial details

Once you’ve discussed your agent’s research, you’re ready to iron out the details of your offer.

Offer amount

Choose an offer amount that’s within your budget and in line with your agent’s estimation of the market value based on comparable sales.

Due diligence fees and timeline

In some states, you may want your offer to include a due diligence fee, which you pay the seller. In return, the seller allows you to take some time to learn more about the property up until a set deadline. During this time, you’ll likely want to complete your home appraisal to confirm the home’s value and get a home inspection to rule out structural flaws and environmental hazards.

If you offer a due diligence fee, you’ll also need to specify the due diligence period, which is the length of time you have to finish gathering information about the property and to decide if you still want to buy it.

Earnest money

Buyers may include some earnest money with an offer. Earnest money, or a good faith deposit, is a small deposit you make to help reassure the seller that you aren’t going to back out of purchasing the home.

If the seller accepts your offer, the earnest money deposit is given to a title or escrow company to keep in escrow — an account that isn’t controlled by either the buyer or the seller. If you end up purchasing the home, the earnest money goes to the seller as part of your payment. If the seller accepts your offer but then you change your mind, the seller may keep the earnest money, depending on the terms of your contract.

Contingencies

You may want to include contingencies in your purchase contract stating that your offer is valid only if certain requirements are met. You can include a financing contingency, meaning your offer applies only if you successfully get funding, or an inspection contingency stating that your offer holds only if the home inspection doesn’t reveal any significant problems with the property.

Another option is an appraisal contingency, which states that you reserve the right to withdraw the offer or negotiate a new purchase price if the appraisal finds the market value of the home is less than the price you and the seller arrived at.

Closing costs

The buyer usually pays closing costs such as appraisal fees, taxes and title insurance. You may be able to get the seller to pay some costs, but you might have to make a higher offer to get the seller to agree to this.

Closing date

Your offer should specify a closing date, or the date when you complete the process of buying the home and take ownership of it.

Offer expiration date

Your offer may include an expiration date — a deadline when the offer is withdrawn if the seller hasn’t given you an answer yet.

Step 5: Draft your offer

Your real estate agent will likely create the offer, called a purchase agreement, and give it to you to sign. Your agent will then submit it to the seller. You’ll then need to wait for the seller to accept or reject your offer — or to make a counteroffer.

If you’re shopping in a competitive market — and you want to stand out from other offers — you could write a personal offer letter to the seller. The letter should talk about why you love the property and make the case that you’re the right person to buy it.


Next steps

Don’t be surprised if your offer is rejected and you have to look for another house. The 2019 Consumer Housing Trends Report from Zilllow Group found that 45% of buyers made multiple offers before buying a new home.

If your offer is accepted, plan to take care of the appraisal and any needed inspections promptly. Choose a reputable inspector, and arrange to pay that person when the home is inspected. This is also the time to look for title insurance and homeowner’s insurance.

Gather all the documents you need for your loan application and start requesting loan estimates from mortgage lenders so you can choose a loan. You’ll want to have the financing process under way as soon as possible because it takes an average of 43 days to close a home loan, according to Freddie Mac.


About the author: Sarah Brodsky is a freelance writer covering personal finance and economics. She has a bachelor’s degree in economics from The University of Chicago. Sarah has written for companies such… Read more.