Making an offer on a house is an exciting step in the home buying process, but there are a few things that have to happen before you can make a serious offer.
All of your prep work will boil down to a well-crafted, attention-getting offer letter. The letter will describe how very, very interested you are in making the seller’s home your home. It will detail any included contingencies and, of course, your offer price.
It’s crucial to know what steps lead to an offer letter – and what happens after it’s been submitted.
Each step will get you one step closer to homeownership, and we’ve got eight of them to walk through.
1. Get Preapproved for a Mortgage
A preapproval letter is a signal to the seller that you’ve already gotten your finances checked out by a lender. It essentially declares that the lender believes you’re good for the money, and they’re willing to lend you what you need.
This is a valuable first step for two reasons.
First, you learn how much house you can afford. The preapproval letter will state the maximum mortgage amount you can borrow. That will help set your price range while you’re house hunting.
Second, it tells sellers and their agents that you’re serious about buying, and you’ve got the funds to back it up.
Sellers will take your offer more seriously if it comes with a mortgage preapproval letter.
2. Find a Buyer’s Agent
You’re going to need a partner. A real estate agent will be your much-needed right hand for the rest of these steps. They’ve been through this before, and they have valuable expertise to offer.
When it comes to finding a real estate agent, get referrals. Ask friends and family who’ve been through the home buying process for recommendations. But recommendations can only get you so far. You’ll need to check an agent’s credentials and work experience.
You’ll be working closely with your agent for the foreseeable future. Get someone who understands your goals and will support and empower you. We know that’s a tall order, so consider interviewing a few agents before you decide who to work with.
3. Pick a Home
There’s no offer letter if you haven’t picked a home. Put home-listing sites on your binge-watch list. Visit open houses and make a point of checking out the homes your real estate agent finds.
Pro tip: When you’re touring homes, keep a sharp eye out for the features or amenities that are important to you. Don’t be shy. Ask the seller or seller’s agent questions about the home’s features and the neighborhood.
Keep your must-haves top of mind. Maybe you want two full bathrooms. Maybe you’ve got three kids and you want each one to have their own bedroom. Maybe you can’t imagine cooking in a kitchen without a marble center island.
Taking your must-haves into account at every open house or on every listing you see will help narrow your choices.
4. Decide How Much To Offer
Once you’ve found the home that ticks off all the boxes, you’ll start to assemble the offer. First, you’ll have to decide how much you’re going to offer. Your offer can’t be plucked from thin air. There are lots of considerations that will factor into the final number.
To help you come up with a strong offer price, there are a few things you’ll want to know about the house:
- The seller’s asking price
- How old the house is
- How long the house has been on the market
- If the house has had any major renovations
- How long the owner has lived there
Each of these factors will play a role in determining how much money you should offer.
Oh, and your real estate agent will come in handy here. They can help you factor in all of these details and create a good offer that sticks to your budget and gives you room to negotiate.
Your agent will also do a comparative market analysis and see what similar homes in the surrounding area have sold for recently. They should also be able to spot any trends worth noting. This will help them determine if it’s a buyer’s market or seller’s market, and that will affect your offer price.
5. Settle on Your Contingencies
Contingencies are conditions that must be met for a sale to go through. If they aren’t met, a buyer can walk away from the deal and get their earnest money deposit refunded (that’s money you give the seller to take the house off the market). Contingencies cover everything from loan approval to a home inspection to repairs you want the seller to make.
Some contingencies could put extra work on a seller’s already full plate. Keeping contingencies to a minimum may appeal to the seller and help your chances of getting your offer accepted.
Here are some common contingencies:
This means that the offer is contingent on your getting approved for a loan. While you may be preapproved, you’ll still need the lender’s final stamp of approval on the loan.
The home inspection clause gives you an out if a major problem is discovered during the inspection. The findings could affect your offer price or move you to ask the seller to make repairs before you buy.
The appraisal clause states that if the house is appraised lower than the purchase price, you’re no longer on the hook to buy the home.
This contingency – which is often included by home buyers selling their current home – makes the home sale contingent on the buyer selling their current property by a certain date. If their home doesn’t sell, they can back out of the offer.
With a title contingency, if the seller cannot transfer the title to the buyer without any encumbrances or liens (aka third-party claims against the property), the buyer is free to walk away from the sale.
If liens showed up during the title search, it would complicate things. So, having a title contingency is a great way to protect yourself.
6. Write the Offer Letter
It’s finally time to write the offer letter. It should be personal, engaging and short. If you’re working with a real estate agent, they will help write this up for you.
A great offer letter includes:
A formal but personal greeting
If you’ve written a cover letter, you can write one of these. Use a business formal writing style and address the seller by their first and last name. Remember, you’re trying to buy their home, a property they may cherish. It’s important to make a good first impression!
Your offer price
This is the price you and your agent agree to offer on the house. Make sure the offer price is lower than the amount you’re preapproved for so you have space to negotiate if necessary.
Your preapproval details and earnest money deposit
Be sure and include any relevant financial information – especially the fact that you’ve been preapproved for a mortgage by a lender. Be sure to include the preapproval letter with the offer letter.
You should also highlight the amount you’re planning to put down for your earnest money deposit. Generally, the deposit is around 1% – 3% of the purchase price. The seller will keep the house off the market after they get the deposit.
This is the space where you’ll list and explain the contingencies you and your real estate agent have decided to request. It’s a careful balancing act. You don’t want to go overboard with these, but you shouldn’t hesitate to request contingencies that are important to you.
A kind thank you
Ending on a positive note and making a good impression may be just the thing that slips your offer letter into the seller’s “seriously considering” folder.
Some home offers are accepted without much or any back and forth, but this isn’t normally the case. If you’re among the lucky few to get their home offer accepted after submitting to the seller, skip over to step 8!
But it’s far more common for sellers to return with a counteroffer, which will outline what they want changed in your offer. It could be the asking price, the contingencies or something else you mentioned in the letter.
The seller may also disclose whether they have multiple offers or a higher offer in the mix. Multiple offers or a higher offer could result in a bidding war. You’ll want to know if your initial offer was a lowball offer or if it was competitive. The seller may ask you to get your offer closer to the asking price.
If you find yourself in this situation, you’ll need to honestly evaluate what you’re willing to let go of and compromise on – and what you’re not willing to let go of or compromise on. You start negotiating once you communicate your concerns or compromises back to the seller or their agent.
Negotiating may feel intimidating, but don’t let it scare you from the house you want. Besides, this is one of the reasons why you hired an experienced real estate agent.
Your real estate agent will help you evaluate the seller’s counteroffer and decide how to respond.
8. Finalize and Sign
Once you and the seller reach an agreement on the purchase price, contingencies and closing date, the house is considered “under contract.”
But you wouldn’t pop that bottle of bubbly at this point.
After your offer is accepted, you’ll start working on getting approved for the mortgage loan; you’ll make an earnest money deposit, and you’ll work with your lender on the appraisal, title search and scheduling a home inspection.
Depending on what was negotiated, the seller will be prioritizing any discussed home repairs.
Homeownership Is Within Reach
In just 8 steps, you can craft an offer letter that gets accepted and jump-starts your life in a new home.
Making an offer on a house is a big step toward your dreams. With our step-by-step breakdown, it’s one part of the home buying process we know you can tackle with confidence!