You’ve found the right home. Now here’s how to make the right offer.
Making an offer on a home you love is one of the most exciting parts of the home-buying process. Here we’ll explain how your real estate agent can help you decide how much to offer and how to negotiate.
How to Make an Offer on a Home
When you’ve found a home you love that also fits your budget, it’s time to make an offer. During the offer process, your real estate agent will help you negotiate with the seller to set a fair price for the home.
Your offer will be based on the condition of the home, the price of similar homes in the neighborhood, and local real estate market trends. There’s almost always some
back-and-forth in the negotiation, so be prepared for a little give and take.
But you won’t have to do it alone—your real estate agent will be your ally through the offer process. They do this all the time, so they’ll be able to give you advice and guidance throughout the buying and negotiation processes.
How to Know if the Home is a Good Deal
Is the home priced fairly, or is the seller asking too much? While you consider how much to offer, keep in mind these common signs that the house may be overpriced.
- The home has been on the market more than four months. If no buyers are interested, the house may cost too much.
- The seller has reduced the price. This may indicate that the seller may be willing to go even lower.
- Your comparative price analysis is drastically different from the asking price. If this is the case, consider making an offer that’s in line with recent home sales in the neighborhood, even if it’s much lower than the asking price. To research local home prices, use a home value estimator tool.
The Offer Letter
Working with your real estate agent, you’ll give the seller a document called a purchase offer, otherwise known as an “offer letter.” The primary purpose of this letter is to tell the seller how much you’re willing or able to pay for the home.
Here’s how to write a winning offer letter that goes beyond that basic purpose:
- Clearly state what you’re willing to pay for the home.
- If you’ve gotten prequalified, you should give the seller a copy of your prequalification letter along with your offer.
- In a seller’s market, consider that the seller may receive multiple offers. In this case, it’s important to give the seller your very best offer.
- State any conditions you have, such as securing the mortgage, and having the home pass inspection.
- Make it clear how long the offer will stand: two to three days is standard.
- Make it personal—include a handwritten letter explaining why you love the house so much and describe yourself briefly. You’ll appeal to the seller’s emotional connection to the home. This can also make a difference if the seller cares about making a choice the neighbors will be happy with.
- It’s customary to include an earnest money deposit check with your offer. The higher the check amount, the more seriously the seller will take your offer.
- Consider, with your agent’s advice, what concessions you might make. Can you offer to close quickly, shorten inspection periods or waive contingencies for things like appraisals or inspections? Always be careful to consider the risks of waiving contingencies before doing so.
After your initial offer, the seller will likely come back with a counter-offer. Work with your real estate agent to decide whether you can accept that offer, or if you want to make a new offer.
Remember that negotiation can continue as you learn more about the home.
- For example, the home inspection may reveal issues like water damage or a faulty heating system.
- In that case, you can ask for money off the asking price, or require that the issue be repaired.
Other Points for Negotiation
You can use more than just the price to negotiate. Low-cost extras can also be put on the table. For instance, you may ask the seller to cover the cost of:
- Pest extermination if that’s deemed necessary by the inspector (it often is)
- Your closing costs
- The home warranty for one year
This can save you money and still let the seller get his or her desired price.
Have a Back-Up Plan
To get the price you want from a negotiation, you need to be willing to walk away from a property if necessary. Before you make an offer, have some other homes in mind as alternatives in case your first choice doesn’t work out.
If you’ve agreed on a price and are sure the house is right for you, you can put down “earnest money” to show your commitment to buying. This is money that’s entrusted to a neutral party—sometimes it’s just a small amount; sometimes it can be up to 5% of the asking price.
If the seller rejects your offer, you get the money back. But if the seller accepts your offer and you back out for any reason, the seller gets to keep the money.
Making an Offer and Negotiating a Price: Case Study
Bryan puts his house on the market, and Alex and Karen fall in love with it. It’s got everything they were looking for in a single-family home—a nice yard, well-preserved Craftsman architecture, and enough room for the kids.
The original price:
Bryan has listed the house at $310,000. Alex and Karen’s real estate agent thinks that’s a bit high for the neighborhood, but the house is in great condition. It’s also more than Alex and Karen want to spend.
Alex and Karen’s real estate agent helps them craft a letter that states an offer of $290,000. They make it clear how much they love the house, describe their plans to raise a family there, and mention the home quilting business that they want to start. Their agent delivers the letter to Bryan’s agent.
Bryan receives one other offer for the house, an offer for $295,000. But the house has sentimental value to him—his family has owned it for two generations. Working with his agent, Bryan makes a counter-offer of $305,000, and offers to pay for the home warranty for a year.
The new offer:
Alex and Karen take a hard look at what they can truly afford, and decide they can’t safely afford the payments on more than $295,000, given the interest rates available. Working with their agent, they craft a new offer letter that says $295,000 is their limit, but they agree to cover the one-time cost of extermination, which the house will likely need. They of course make it clear that this is contingent on the house passing inspection.