How to make an offer on a house

Now that you've found your dream home, it’s time to submit your offer to the seller. Before you craft your offer letter, you should understand that tour offer is more than just how much you’re willing to pay for a house — it also dictates the terms and conditions for the transaction, and it’s a chance to entice sellers into selling their home to you.

Understanding the process can help it go smoothly but don’t feel pressured to know everything. Your agent will be able to help you. If you feel overwhelmed, remember this simple rule: Know your budget and stick to it — the rest is just formalizing your request.

What to know before making an offer on a house

Before you make an offer or even start house hunting, the first step in your home-buying journey is to get preapproved for a mortgage.

A preapproval letter shows that a mortgage lender has reviewed your financial information and decided that you are eligible for a mortgage of a certain amount. It’s helpful for real estate agents because it gives them a clearer sense of your budget and signals to buyers that you’re serious about buying their home.

Know your budget

Your budget is your biggest constraint in the search for your dream home — just because you’d pay a million dollars for a house doesn’t mean you can (or should). Your preapproval letter can provide an idea of the upper limit of your budget, but you may choose a lower threshold to keep your mortgage payments more manageable.

→ Factor in these hidden costs of homebuying when calculating your budget

1. Decide how much to offer on the house

Your offer amount is the most significant part of your offer letter. You want to impress the sellers while securing a good deal. Your offer price should be based on a detailed analysis of the home, the neighborhood, market conditions, and your budget. Your real estate agent will help you factor all of these elements into the calculations to come up with an offer price. Whether you come in above, under, or right at the asking price, your decision should be based on facts.

Keep in mind that your offer may still get rejected and countered, but the knowledge that your offer was carefully considered and grounded in fact will give you peace of mind.

→ Learn more offering aboveasking price or under it

Check the market

Your real estate agent can help you gather sales data from similar homes in the area. This process is referred to as comparative market analysis, and it can be a valuable tool for understanding the local trends influencing the seller’s asking price. Likewise, these trends should influence your offer price.

Talk with your agent about market conditions to devise a strategy for approaching your offer price.

→ Browse market trends in your area.

Research the house

Now you’ve got the big picture, it’s time to zoom in on the house itself. Examine the following to get a clearer sense of the home and its history on the market:

• Days on Market (DOM): Has the house been on the market for a while? Has it been longer than the national median? What about the local median? If a home has been on the market for a while, sellers may be motivated to sell at or under asking price.
• Comparable homes: Looking at comparable homes in the area can help you set a baseline for the home’s asking price — is it within a reasonable range? Maybe it’s higher than similar homes. Your agent will be able to help you turn these insights into strategies for calculating your offer price.
• Competition: In a seller’s market, you may have to consider that your offer is going up against many, many others. If this is the case, you might consider offering over asking price to stand out to sellers. 

2. Budget your earnest money deposit

Your earnest money deposit is the amount you pay upfront and risk forfeiting if you walk away from the purchase. It comes out of your down payment and is typically 1% to 2% of the total purchase price. (Cash buyers must also submit an earnest money deposit, so don’t sleep on this step.)

A bigger deposit can be more enticing to sellers. It shows that your offer isn’t just talk — you’re willing to back it up with cash and have the resources to do it — so it’s worth being strategic about this part of your offer.

3. Consider contingencies

The contingencies of your offer letter protect you from losing your deposit in the event that something happens to make you want to (or need to) walk away from the home sale. Consider it your evacuation route, should the unexpected happen — like if the appraisal doesn't match the sale price or comes in low.

Common contingencies include:

• Inspection contingency: A home inspection can reveal issues with the structure of the home. This contingency allows you to renegotiate your closing terms or walk away from the deal should the home inspection reveal serious damage.
• Financing contingency: A preapproval letter isn’t the same as securing a mortgage. This contingency protects you if you cannot secure a mortgage for the needed amount.
• Appraisal contingency: Mortgage lenders require an appraisal to confirm that the home is adequate collateral for the loan. This contingency allows you to renegotiate or walk away if the appraised value is less than your offer.
• Home sale: If you have equity locked up in your current home, you may not be able to purchase your new one without your current one selling. This contingency stipulates that you can back out of the deal if your current home doesn’t sell. Although it’s necessary in many cases, this contingency can be a turn-off for sellers who don’t want to gamble their home sale on yours.

You can make a non-contingent offer when you buy and sell with Orchard.

4. Write your offer letter

The main points of your offer are outlined, now, it’s time to formalize them in writing. You may consider making a personal appeal to the homeowner. You might compliment the house, its characteristics, or describe how you envision building your life there. These details can help you stand out from the crowd in a bidding war scenario.

Unless you’re buying your house without a realtor, your agent will craft the offer letter on your behalf. Once they do, you’ll finalize it together before sending it to the seller or the seller’s agent.

5. Wait and negotiate

Once a seller reviews your offer, they can do one of three things: accept, reject, or counter your offer. It typically takes a few days for your offer to be accepted on a home.

Counteroffers

The ball is back in your court if the seller makes a counteroffer. You can accept the offer as is, decline it and move on with your house hunting journey, or counter it with a counteroffer of your own.

If you choose to counter, be prepared for several rounds of negotiation. Keep in mind that it’s not just the price on the table — contingencies, closing date, and all the other terms and conditions are up for debate, and they can be equally powerful bargaining chips.

What if my offer is rejected?

Unfortunately, not every offer gets accepted. If your offer is rejected, you’ll have to move on.

In June of 2021, listed homes received an average of 3.4 offers, according to the National Association of Realtors. That means for every house on the market, two to three buyers walked away with a rejected offer. 

Take the learnings from your experience and apply them to your next offer — try a higher earnest money deposit or offer over asking price. You can also work with a power buyer, like Orchard. Get started today.

6. Sign the purchase offer agreement

The seller has accepted your offer, but it isn’t official until both parties — the buyer(s) and the seller(s) — sign the purchase offer agreement. This agreement turns your offer letter into a legally binding contract that will dictate the terms and conditions of the home sale.

Once everything is in order, sign on the dotted line. You’re one step closer to being a homeowner and now the closing process begins.

FAQs

As you go through the process of crafting your offer letter, you may find that you have additional questions about making an offer on a house. Here are answers to some of the most commonly asked ones.

Q: What makes a strong offer on a house?

A strong offer on a house is one that is competitive and reasonable. This typically means offering close to or above the asking price, having a pre-approval letter from a lender, and being willing to negotiate other terms such as the closing date or contingencies. Additionally, having a personal connection with the seller, such as sharing similar interests or having a shared history, may also increase the likelihood of acceptance.

Q: How do I make an offer on a house?

To make an offer on a house, you will need to work with your real estate agent to draft a written offer that outlines the terms and conditions of the purchase. This typically involves providing information about the purchase price, any contingencies you would like to include, the closing date, and other important details. Once your offer is drafted, you will submit it to the seller or their real estate agent for review.

Q: What do you need to make an offer?

While you don’t strictly need a real estate agent to buy a house, having one will help — and their expertise will really shine when writing an offer letter. Outside of that, you’ll need:

• The seller’s name and address
• The name of everyone who will sign the deed
• Your offer price
• Your down payment amount
• Your earnest money deposit amount
• Your mortgage pre-approval letter
• Contingencies you want to include
• Your preferred closing date
• Your preferred move-in date
• Deadline to review the offer

Q: Is a preapproval letter required to make an offer on a house?

No, but it will help — especially in a seller’s market. At this time you may, however, have to give a proof of funds letter, which shows you can cover the down payment and closing costs.

Q: What if I decide to walk away?

You can walk away, but you may lose your earnest money deposit.

It will come down to the terms you outlined in your offer letter. Are you protected by any of your contingencies? If not, you’ll likely have to forfeit your deposit. Avoid this situation by only putting an offer in on a house you’re serious about buying and carefully crafting your contingencies to cover you in the case of unforeseen circumstances (like a house with foundation issues).

→ Read more about walking away from the deal