The Fundamentals of Making an Offer on A Home

What’s the best way to go about making an offer on the home you’ve decided needs to be yours, after months of searching? The short answer is, not without knowing what you’re doing.

For one, you want to have an accurate picture of the fair value of this home. For another, your finances need to be in order. Then there are the practical transactional things like making your offer more compelling, negotiations, and finally money transfers and protection. Every step of the way, your real estate agent will be there to guide you through the process, so lean on their expertise while taking the time to understand exactly what’s going on.


Know both the market and the seller.

This is basically a half-and-half assessment here. You need to be able to offer a competitive price that’s comparable to other nearby homes on the market, but you also want to understand a bit about the seller’s psychology and motives in order to make the best offer with the greatest chance of being accepted. Start by researching local selling prices for homes comparable to the one you’re looking to buy. This will give you an idea of the fair market price.

But that’s not the full story. Check the history of the property, and pay attention to when the seller purchased it, and for how much. A seller who bought a home several years ago and has seen some appreciation in its value may be more willing to negotiate on price than a homeowner who purchased a home more recently.

Finally, take an objective look at things. Is the seller trying to sell quickly? They might take a lower offer. Do they need flexibility to find a new home, and could you rent the home to them while they look after you purchase it? That might make your offer stand out among those of other buyers. Speaking of other buyers, how hot is the market? If there are a bunch of buyers and relatively few sellers (such as now, but this varies by location), then the seller has more leverage and you may not be able to move them much lower than their asking price.


Get pre-approved for the amount you want to offer.

Most of us are going to need to take out a mortgage to buy a home, and sellers justifiably want to be assured that you can get one. When you are pre-approved by a lender before you submit your offer, you have a guarantee that they are willing to lend you a certain amount under specific terms and conditions. A seller will take an offer from a buyer who’s been pre-approved more seriously than one who hasn’t.

This is different than being pre-qualified. Being pre-qualified doesn’t really carry any weight, and it doesn’t guarantee to the seller that you’ll be able to get financing. Pre-approval is a laborious (and invasive) process where the lender will find out your creditworthiness as a borrower and assess the level of risk you present to them. In other words, if being preapproved is like having a driver’s license, being pre-qualified is like you just bought a unicycle.


Lean on the professionals.

Your real estate agent will be your primary confidant and counsel here. There’s a lot of legal jargon and a surprising lack of universality across different locations in terms of laws and regulations. You want to make sure that your written offer meets legal requirements, and they vary from state to state.

When it comes to what a formal offer itself should include, the basics are the date of the offer, the address and description of the property, the price offered for the home, finance terms such as loan details and the amount of the down payment, escrow details (more on that in a minute), closing date, actual possession date, and any contingencies, which would allow you to cancel a contract without penalty.

A good example of a contingency might be your right as the buyer to have the home appraised and inspected.


Protect your money

You’ll want to arrange to have the deposit held in an escrow account so that your money can be returned to you if the offer falls through. This is important because it’s how both parties ensure a smooth transfer of funds and physical property, not to mention other things like maintenance issues that come to light during inspection that may require the seller to leave some money in escrow.


Be prepared to negotiate.

At some point, you’ll have to deliver the offer to the seller or to their real estate agent. Ideally, they’d accept it. I can tell you from experience, and so can most homeowners, that it’s almost never that simple. You need to be prepared for the possibility that they’ll reject it outright, or come back with a counteroffer.

What would a counteroffer look like? They normally include changes like a revised sale price or closing/possession date. You can accept the counteroffer, or submit one of your own. In a sellers’ market, this is a little less likely to play in your favor, especially the longer the process drags on. In any case, it will continue until you and the seller both agree, or until the offer is rescinded. Once an offer is accepted by both parties and signed, it becomes a binding contract, so it’s absolutely imperative that you stay involved throughout the process and understand the offer’s contents before signing.


Buying a home is a tricky business, but it’s well worth your time and effort to be up to speed on things. If you need help buying a home, drop me a line in the submission form to the right, and I’m happy to answer any questions you might have.


– Matt