When you find a house you want, how to make an offer on a house becomes extremely important to getting it. Your real estate agent’s expertise plays an important role in the process. Your offer should set you apart from other potential buyers without paying more than necessary. With so many factors to consider, here are the important steps to take when making an offer.
Lean on Your Real Estate Agent
In short, if you’re not well informed on the laws and regulations of real estate transactions, we highly recommend working with a real estate agent (and/or real estate attorney in some states).
Your real estate purchase agreement (also known as a purchase offer or contract) must follow all federal, state and local regulations. State laws do vary, and some local provisions may be required in your area. Preparation and assembly of your purchase agreement to meet all laws, regulations, terms and conditions of the home purchase is one of your real estate agent’s primary roles. To avoid any potential headaches, and to make the home purchasing process easier, work with a real estate agent to assure the purchase agreement is put together well.
If you’re not working with a real estate agent, and want to speak with a qualified Homes for Heroes real estate specialist in your area, simply register online and they will follow up with you within 24 hours.
Current Market Analysis
Now that you know the house you want, it’s time to figure out its fair market value. During the house searching process, you and your agent probably looked at homes that sold in the area and the selling prices. It’s time to revisit that research and update it with any recent sales data. Also, try to learn as much as you can about the property you’re looking to buy. If they are available, ask questions of the selling agent or current owners. The more they talk about the home, the more you will learn. The home inspection will provide most of the information regarding the condition of the house, but the more information you have before making an offer, the better.
Determine How Much to Offer
Your real estate agent will help you assess how much to offer by looking at key factors:
- What similar homes sold for in the neighborhood?
- How many buyers are interested in the home?
- How long has the home been on the market?
- How quickly are homes typically selling in the area?
- Have they dropped the price of the home?
- Have other offers fallen through for any reason?
- Why is the seller moving?
- How quickly does the seller need to sell?
Your real estate agent will help you determine the best offer strategy to get the home you want for a reasonable price, and not lose out to other interested buyers. In some cases, if the market is hot, your real estate agent may recommend you offer more than the asking price to beat out the competition. This will depend on how much you really want the home, and what you can afford to offer.
Determine Down Payment and Earnest Money Terms
Remember the four other costs of buying a house? Earnest money and your down payment are two of them, and they need to be defined for the purchase agreement. Earnest money is essentially a deposit you make to show the seller you’re serious about purchasing the home and your offer is in good faith. The amount you’ll pay in earnest money varies, but generally you can expect to put down 1 to 2 percent of the overall purchase price. Your earnest money typically goes into an escrow account until closing day, when it typically becomes part of your down payment. Earnest money is refundable if something causes the deal to fall through. For example, the home inspection finds major structural issues. However, this applies only if the terms were explicitly stated in the signed purchase agreement.
Write an Offer Letter
Before you submit your offer, your real estate agent may ask you to write a personalized letter to the seller. Your letter should describe a little bit about who you are, your plans for the house and briefly explain your offer (provide rationale if offer is below asking price). You want to communicate to the seller that you respect them and their house. After all, the home you’re buying could be the seller’s childhood home, or the place where they raised their own kids. They likely have an emotional connection with the house and want to see it go to someone who will appreciate it.
When it comes to buying a home, you need to do everything you can to gain an edge. Sometimes sending a letter can make all the difference between having your offer accepted and having to go back to the drawing board to find another home.
Write Purchase Agreement: Assessment and Contingencies
A big part of how to make an offer on a house is putting together the purchase agreement. A purchase agreement is a legally binding contract that outlines the purchase price and terms of the sale. This is where you’ll build in all of the contract clauses and contingencies. Your real estate agent will be able to give you advice on what contingencies to include in the purchase agreement. Here is what a standard purchase agreement should include:
- Property address
- Offered purchase price
- Amount of downpayment
- Mortgage contingency provision – Allows you to be released from the offer if you’re unable to obtain a specific loan amount, at a specific interest rate, usually within 30-60 days
- Earnest money deposit amount
- How long the offer will be open
- Date sale will be finalized (closed)
- Date you can move into home
- Items to be included in the sale
- Items not included in the sale
- Title guarantee
- Seller provision – States seller is responsible for paying all utilities, property taxes, insurance and other house related expenses through the closing date
- Inspection contingency clause – Allows you to have home inspected and should make purchase offer contingent on satisfactory inspection report
- When buyer can do final walk-through inspection
- Liquidated damages clause – Requires seller to pay certain amount every day beyond agreed upon move in date you’re unable to move in
- Sale of your current home contingency clause (if needed)
- Language on what may cause the deal to be canceled, and earnest money returned
Wait for Seller to Accept, Counter or Decline
Once you’ve made your offer the seller will either accept, counter or decline your offer. If they accept, congratulations! You’re on to preparing for closing and the big move. If they decide your offer wasn’t what they prefer, they may counter with a new price or terms. It will be up to you and your real estate agent to weigh the counteroffer and decide how to respond. Typical counter offer proposals from a seller include:
- Higher purchase price
- Removing contingencies
- Reducing or extending time to complete contingencies
- Excluding certain items from the sale
- More time for seller to move out
- Time for attorney review
- Liquidated damages clause if you back out
Being aware of the process, what goes into it, and how you play a role in working with your real estate agent to bring things together helps with how to make an offer on a house.
Register with Homes for Heroes and we’ll match you with our real estate specialist in your area. They can be your agent and guide you through the process, help you make an offer to land your dream home, and save you money in the process.