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You’ve pre-qualified for a loan, found your dream house, and now you’re ready to make an offer.
In any market, making an offer on a house can be a long and complicated process, but the challenges for buyers are even steeper in today’s seller’s market. In fact, you may find it takes a few tries to get your offer accepted, especially if you’re a first-time homebuyer.
Making an offer brings you one step closer to closing on your new home, but it’s also a stage in the homebuying process that requires flexibility, a willingness to negotiate, and sometimes knowing when it’s best to walk away.
The best way to make a successful offer on a house is to strategize and craft an appropriate offer with your real estate agent that fits both your needs and the realities of the current market. Then, be patient and flexible if issues do arise. Here’s what you should keep in mind throughout the process:
How to Make an Offer
By the time you’re ready to make an offer, you should have already completed a few important steps in the homebuying process. These steps include meeting with a mortgage lender to get pre-approved for a mortgage and confirming how much house you can afford. Many people work with a real estate agent, who can also help you through the offer process.
Once all this is in place, here are the steps to make an offer:
1. Craft the Offer
A solid offer depends on a number of factors, including asking price, comparable recent sales in your area, and current market conditions. You and your agent can use these factors, as well as your individual financial situation, to craft an offer that you can afford at a fair market selling price.
Crafting a successful offer “has a lot to do with price, but also non-price factors that can make your offer more appealing to a seller,” says Tiffanie Mai-Ganske, an Idaho Realtor and regional vice president of the National Association of Realtors.
These factors include the terms of the offer, or details like the down payment, any seller concessions to cover closing costs, whether you’ll waive an appraisal or home inspection, and the timeline for moving into the house.
The terms also often include an earnest money deposit. This works like a good-faith deposit you put down upfront to show you’re serious about the offer. It usually ranges from $1,000 to 1% of the purchase price of the house.
2. Submit and Negotiate the Offer
Once you’ve prepared your offer, you and your agent will submit the written document — which is legally binding — to the seller and their agent. If your offer is accepted, you’ll pay the earnest money deposit in this stage, and your offer should detail the circumstances in which that deposit may or may not be returned to you.
You can also include a personal letter to the seller in the offer. While it’s not essential, adding a human touch and making a personal connection with the seller might help set your offer apart in a competitive market.
The seller then reviews your offer and decides if they want to accept. If there are multiple offers, it can take around 24 to 48 hours for the seller to evaluate all the offers and give a response to the one they’re looking to move forward with, says Mai-Ganske.
The seller may also choose to submit a counteroffer, which you then have the option to accept or reject. Usually, this is the beginning of the negotiation process, which can last all the way through closing.
3. Appraisal and Inspections
If your offer is accepted, an appraisal will be done to ensure the value of the house lines up with the offer and amount your lender is giving you to buy the house. Many buyers also have professionals perform a home inspection, along with other inspections, like septic or pest inspections, as necessary.
Prices vary based on location and service providers, but a home inspection generally costs anywhere from $500 to $750, according to Ginger Walker, a Virginia-based Realtor at Coldwell Banker Elite Real Estate. Appraisals carry a similar cost.
Throughout this stage of the process, the negotiation stemming from the initial accepted offer can continue. A major finding on a home inspection, for example, might lead to the seller accepting a lower price than originally offered.
The cost of the home inspection usually falls on the buyer, Walker says. You can choose to waive a home inspection, unless you’re using a loan that requires it, and doing so may even help make your offer more attractive. But it’s also risky — inspections can give you peace of mind and uncover any major issues with the home that may cost you later on.
If the house is part of a homeowner’s association, you’ll also need to sign documents agreeing to the rules of the homeowner’s association in order for the offer to move forward.
The home inspection, appraisal, and homeowner’s association agreements are all areas where you may be protected by contingencies in your offer, allowing you to exit the contract without penalty if any issues arise.
4. Finalize the Deal and Close on the House
Once the inspections and appraisals are complete and any issues resolved, it’s time to finalize the deal and close on the house.
At this point, you’ll work with your real estate agent and mortgage broker, along with the seller, to submit the documents and payment required to close on the house.
Timelines can vary based on location and the type of house being bought. In Virginia, the process from contract to closing takes around 30 to 45 days, according to Walker. While in New York City, buying a home can take anywhere from 45 to 90 days with houses and three to six months for co-ops and condos, says Maxine Teele, a real estate advisor at Keller Williams Realty NYCGroup.
How to Prepare for Making an Offer
Have Money Ready
Besides the down payment, you’ll need to save money for upfront expenses like the appraisal, home inspection, and earnest money deposit. Walker usually recommends setting aside $2,000 to $2,500 to cover those expenses.
In addition, you should make sure you’re pre-approved for a mortgage and any grants you plan to use, Teele says. “You want to have those funds available before you make an offer … otherwise it’s a waste of everyone’s time.”
Don’t Make Any Major Financial Changes
Any significant changes to your finances during the homebuying process can affect your eligibility for your mortgage. This includes opening new credit cards, incurring additional debt, and other activities that could affect your credit score or debt-to-income ratio.
“If I go out and buy all my furniture because I’m very excited, and I open up a new credit card, and put that brand new couch and entertainment center on there, I may now not be able to buy the house because of that,” Walker says.
If you need to make any financial changes that may affect your credit, Walker advises talking to your lender first to make sure there won’t be any issues getting final approval on your mortgage.
What Could Go Wrong
There are several stages of the process where your offer could fall apart, including the house inspection, the appraisal, and the financing. Luckily, these are also points where you’re typically protected by contingency clauses, which can allow you to walk away from the deal without legal consequences or a requirement to finalize the sale. In some cases, they might even allow you to get your earnest money back.
“During the home inspection process, that’s really when a lot of things are uncovered that maybe even the seller doesn’t know about,” says Walker.
If the home inspection reveals issues with the house, you can negotiate with the seller to get the problems fixed. Otherwise, you may be able to void the contract without penalty with a contingency, although you’ll still incur the cost of the home inspection and other services already performed.
The appraised value of the house you’re buying must match the sale price for the deal to move forward. If that isn’t the case, you’ll need to either make up the difference that’s not covered by your mortgage loan, or negotiate with the seller to lower the price. In some cases, a buyer and seller might even meet in the middle, where the buyer puts up a little bit more and the seller accepts a little bit less, in order to close the deal.
This is becoming a more common issue, Walker says. “In this market, because inventory is so short, and sellers are getting these escalated crazy offers … that is a hiccup that can happen.”
Another protection in place throughout the buying process is the financing contingency, Walker says.
This means that if you lose your source of income and are no longer able to pay for the house, you can exit the contract. Changes to your credit score or debt-to-income ratio can also affect your qualification for the mortgage, which is why it’s important to avoid any major changes to your finances before closing.
“Being flexible and patient through this strong seller’s market is the key to success,” says Mai-Ganske.
Buying a house, especially in today’s seller’s market, can be a long process. But if you go in with a strategy, you’ll be in a much better position to find and secure your dream house.