How to Make an Offer on a House: 10 Steps
Key Takeaways
- Get prequalified or preapproved to understand your budget and show sellers you’re prepared to finance the home.
- Use comparable sales and market conditions to determine a competitive offer price.
- Balance a competitive offer with protections like contingencies, earnest money and a flexible closing timeline.
- Know your maximum offer and work with experienced real estate and mortgage professionals throughout the process.
Step-by-Step Tips for Getting Your Bid Accepted
Finding your dream home is exciting, but before it’s yours, you have to make an offer that the seller accepts. From getting prequalified to having a flexible timeline, here are steps you can take to make a winning offer.
1. Get Prequalified or Preapproved Before Shopping
Before shopping for a home, it's important to understand your budget.
Prequalification helps you estimate how much you'll be eligible to borrow. Because you might want to make an initial offer below your maximum limit to leave room to negotiate, knowing your upper limit helps you find the right home and make the right offer.
Once you get prequalified or preapproved, you can provide documents to the seller to show you're likely to secure financing and be able to close on the home. You can provide the seller with the following documents:
- A prequalification letter demonstrates that your lender believes you’re qualified to get approved for a mortgage based on information you self-report. These letters include the amount you may be qualified to borrow, which can help you find homes you can afford.
- A preapproval letter demonstrates that your lender has reviewed your financial credentials themselves and determined you're likely to be approved for a home loan subject to a full underwriting review.
- A proof-of-funds letter typically shows that you have enough cash to make the down payment and pay closing costs. When you make a cash offer for a house, the letter should show that you can afford the full price you are offering.
2. Offer a Competitive Purchase Price
Offering to buy the home for a price close to its fair market value is a good way to get your bid accepted. Most sellers have a pretty good idea of what their home is worth and are unlikely to accept a low bid.
Consider working with a buyer’s agent to help you decide how much to offer. Real estate agents monitor the local market within their communities so they understand what houses typically sell for and how reasonable the asking price is. This can help you choose a competitive price.
3. Know the Market and Comparables
Being informed about your local market can help you determine a fair price for a home so you can participate effectively in negotiations and know when it may be time to walk away. You can learn about the market by reviewing real estate comps, or details on recent comparable homes that have sold.
As you review comparable sales and look at details like how long a home is typically on the market, you can determine if it's a buyer's market or seller's market. Here's what each of these terms mean:
- Buyer’s market: A buyer's market means demand for homes may not be very high, so buyers have more home options and a lot of negotiating leverage.
- Seller’s market: A seller's market means that demand for homes is generally higher than the supply. Buyers have limited options for homes and very little negotiating leverage, so they need to make a competitive offer early on.
How Much Home Can You Afford?
Getting prequalified is a great way to estimate home prices you can afford. Begin your journey toward buying a new home today.
Get Prequalified
4. Make a Good Earnest Money Deposit
An earnest money deposit is a deposit that you make to show you’re serious about buying a home and will make a good faith effort to close on the house. Earnest money deposits often range between 1% and 5% of the home’s purchase price.
The deposit is credited to your down payment if you complete the purchase, but it could be lost if you walk away from the deal without a valid reason as defined by your contract.
5. Consider Necessary Contingencies
Homebuying contingencies are conditions that must be met before the home sale closes. An offer that includes many contingencies can be less attractive to sellers. At the same time, contingencies offer buyers important protections, so use caution when choosing which ones you're willing to waive.
Some contingencies buyers may decide to waive including the following:
- Home-sale contingency: Waiving this contingency means you are not making the purchase of the home conditioned on the sale of an existing home.
- Inspection contingency: Waiving this contingency means that you agree to buy the home even if an inspection shows problems. You can also choose not to waive the contingency entirety, but to make it more seller-friendly. For example, you could agree to accept there may be problems with the home that cost up to a certain dollar amount to fix.
- Appraisal contingency: Waiving the appraisal contingency means you agree to buy the home for the offered price even if the home appraises for less than you agreed to pay. You may need to bring more money to closing to cover the appraisal gap as lenders cap the amount they will lend you based on the appraised value of the home.
If you waive any contingencies, be sure to understand the risks you're taking on and the unexpected costs you could face.
6. Allow for a Flexible Timeline
Sellers may prefer to accept an offer from a buyer who is willing to work with them on the timeline for closing. If you have flexibility, aim to make the closing date as convenient as possible for the sellers.
It's also important to realize the homebuying process takes time. Don't rush when you make an offer or accept a bad deal just because you're eager to make a purchase.
7. Be Prepared to Negotiate
It’s common for sellers to make counteroffers or ask for other changes before they accept your bid. For example, the seller might want a different closing date than the one you propose. Don’t be surprised if there’s some negotiation before your offer is accepted.
When you enter into negotiations, decide what your best and highest offer is. That will help you negotiate with a clear head and accept when to walk away. You can also respond more quickly if you know your upper limit, which is important as sellers may be in talks with other potential buyers.
8. Consider an Escalation Clause
If you are in a competitive market and worried about being outbid, you can also consider including an escalation clause in your offer. An escalation clause means you specify that you will automatically increase your purchase offer by a set amount above any higher competing bids, up to a maximum limit.
9. Work With a Real Estate Agent
A real estate agent can help you to make an offer on a home. Your real estate agent will:
- Provide insight into your local market based on comparable sales.
- Help you to evaluate whether a home is listed for a fair price.
- Work with you to determine how much to offer.
- Help you decide which contingencies to include and which to waive.
- Manage the negotiation process and interface with the sellers on your behalf.
Real estate agents can use their experience to help you make a competitive but fair offer.
10. Find a Reliable Mortgage Lender
Finding the right mortgage lender enables you to set a budget, get prequalified or preapproved, and move toward closing. You want to make sure your lender is a partner in setting you up for success.
As you’re looking to finance your home, it’s important to work with a reliable lender. Key traits to look out for include lenders who:
- Offer prequalification or preapproval.
- Provide customized rates for your financial situation.
- Have government-backed mortgages for affordable home loan options.
- Have qualifying requirements that you're likely to meet.
- Offer competitive interest rates.
- Provide support during the loan application and underwriting process.
- Are transparent about closing costs.
Final Thoughts: Are You Ready to Make an Offer?
Making an offer is an important step in your homebuying process. Before you move forward with an offer, reach out to Freedom Mortgage to find out about your loan options. A mortgage professional can help you find a loan that works for you, so you can set your homebuying budget and move forward with confidence.
Christine Rakoczy has been a financial writer since 2008, contributing to major publications, including Credit Karma, CBS MoneyWatch, WSJ, and Forbes Advisor. While her special focus is diving deep into mortgages, Christine has extensive experience with all types of financial topics.
In addition to writing for online articles, Christine has also taught business administration courses at a career college and has served as a subject matter expert on numerous business and legal courses.
Christine earned her JD from UCLA School of Law in 2008 and has a BA in English, Media, and Communications, with a Certificate in Business Administration from the University of Rochester.
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