How to Make an Offer on a Home in 5 Steps

Written by Steven PorrelloSeptember 29th, 20226 minute read

An offer — if accepted — is a legally binding contract between you and the seller. It includes the price you want to pay for the house, details on closing costs, your terms and conditions, and any contingencies that need to be met before you can close.

While your real estate agent (and possibly attorney) will help you draft a letter that complies with the laws of your state, you’ll be in charge of making some important decisions, such as how much earnest money you’ll offer and if you’ll add contingencies.

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How does making an offer on a house work? Below we’ll break it down into five important steps:

  1. Get a mortgage preapproval
  2. Decide on a purchase price
  3. Figure out your deal breakers
  4. Write an offer letter
  5. Negotiate and sign

Step 1: Get approved for a mortgage

A mortgage preapproval increases the likelihood that a seller takes your offer seriously. Ideally, you'd be preapproved before starting house hunting.

Once you have a specific home and price in mind, your lender can estimate the cost of property taxes and homeowners insurance. Those figures can help you determine the maximum sales price you can afford, giving you an upper limit on your offer.

Can you make an offer without a mortgage preapproval?

While you can make an offer without a mortgage preapproval letter, your offer might not be competitive without one.

Most sellers will ask to see your mortgage preapproval. They could reject your offer outright without one, even if the rest of the offer is extremely attractive.

Without a preapproval letter, your offer will stand out only if you're paying cash — that's because you're technically not getting a mortgage.

Step 2: Decide on a purchase price

The price you’re offering to pay for a home is arguably the most important part of your offer letter. Unfortunately, it’s also the hardest to calculate.

You want to hit a sweet spot between what the home is actually worth and the lowest price the seller is willing to accept. To determine that amount, your offer will depend on four main conditions:

🌟 The state of the market. In hotter markets, you’ll likely have to bid higher than the listing price in a seller’s market. For cooler or more balanced markets, you could start with the listing price or 6–7% above if you want to be more competitive.

🛠 The condition of the home. For homes that need work, you might be able to bid lower than the listing price.

🗓 The length of time the home has been on the market. The longer the home has been on the market, the more successful you’ll be in negotiating a lower price. For newer listings, you’ll likely need to offer close to the listing price.

📉 The price of similar homes in the same area. Homes that have the same bedrooms, bathrooms, and square footage will impact the value of the property you’re looking to buy.

How can a real estate agent help you price a home?

Your agent can do a comparative market analysis (CMA) to help you determine a reasonable asking price. A CMA compares the home in question with multiple recently sold properties in the same area. By knowing what similar homes are selling for, you can feel more confident bidding a price that’s relatively the same.

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✍ Quick tip: A low-ball offer rarely works. Offering an extremely low price will likely alienate the seller. If you’re going to bid lower, make sure you have good reasons for doing so.

Should you offer below the listing price?

In a seller’s market, offers below the listing price will likely be outbid. But occasionally a seller’s motivation is so high, they might just accept a lower offer. If you’re thinking about making an offer below the listing price, here are some questions that might help you gauge the seller’s motivation.

👇 Questions to ask the seller
How long has the home been on the market? The longer the home has been sitting, the more likely the seller is motivated to get out. New listings, on the other hand, tend to sell close or exceed the listed price — even in a cold market.
Did the seller lower the price recently? If so, they may be flexible in their listed price.
Has the seller already made an offer on their next home? These home sellers may be willing to accept a lower offer, especially if the purchase of their next home depends on the sale of this one.
Has the seller changed real estate agents at least once? This could be an indicator that the seller is more highly motivated to sell quickly.
Is the house vacant? A vacant home can be a golden opportunity.
Does the seller need to move quickly? Sometimes, sellers need to move out of the area by a specific date due to employment or a family emergency. If so, they may more readily accept a lower offer.
Has the seller had a previous sale contract fall through? Sellers are psychologically devastated when a sales contract falls apart and are likely to deal.

Step 3: Figure out your deal-breakers

Along with your asking price, your offer will include certain contingencies, such as:

  • How much earnest money you’ll deposit
  • Any contingencies you want to add
  • Information on how you want to handle closing costs

Earnest money is a security deposit that you pay as soon as the seller accepts your offer. Typically, the more earnest money you put upfront, the more competitive your offer.

The earnest money shows the seller you’re serious about buying their home. It ensures the seller doesn’t lose money if they take their home off the market and you suddenly back out of the deal. It’s usually 1% to 3% of the purchase price, and it’s kept in an escrow account until closing.

As long as you don’t break your contract with the seller, your earnest money will be applied toward closing costs, your down payment, or returned to you.

Contingencies are escape clauses that allow you to walk away with your earnest money if certain conditions aren’t met. Some common contingencies are:

  • Home inspection contingency: you can renegotiate or break a deal if the home has more expensive problems than you originally thought.
  • Appraisal contingency: if the appraised value comes back lower than the purchase price, you can walk away from the deal.
  • Home sale contingency: you have a specific amount of time to sell your current home before buying a new one. If you can’t sell your home within this time frame, you can back out of the deal.

Your offer will specify who you expect to pay closing costs, such as real estate commissions, title inspections, recording fees, property taxes, and escrow charges.

Buyers and sellers typically split these fees, with sellers often taking a bigger chunk of the costs. Your agent can advise you on who traditionally pays for what fee.

Step 4: Write an offer letter

Your agent will now take all your essential information and package it into a legal purchase and sales agreement and send it to you to sign.

Your letter will include the following essential information:

  • Address: the address of the home you want to buy
  • Names: you and whoever else will be listed on the title
  • Offering price: the price you’re proposing to buy the home
  • Preapproval: a copy of your mortgage preapproval letter
  • Earnest money: the amount you’re willing to deposit up front
  • Closing costs: expectations about who will pay which costs at closing
  • Contingencies: all the stipulations you'll need to be met before closing
  • Key dates: the date you want to close on the house you're buying, and the date you’d like to move out of your current home
  • Deadline: the date your offer expires

Step 5: Negotiate and sign

Once a seller reviews your offer, they can do one of three things: accept, counter, or reject the offer.

✅ Seller accepts your offer

Great! You’ll deposit your earnest money in an escrow account, then move on to the home inspection and appraisal.

🤝 Seller counter offers

The seller hasn’t rejected your offer, but you have some work to do. You can accept the seller’s counter offer, come back with your own counter offer, or simply walk away.

❌ Seller rejects your offer

If you really want the house, you could work with your agent to make your offer stronger.

Summary

  • An accepted offer is a binding contract between buyers and sellers.
  • At minimum, an offer letter includes the purchase price, contingencies, closing cost information, earnest money amount, mortgage preapproval letter, and a deadline.
  • Your real estate agent can help you determine a reasonable asking price, draft your offer, and send it to the seller on your behalf.

FAQs about making an offer on a house

Sellers typically respond to offers within one to three days with an acceptance, counter, or rejection.

Most sellers will ask to see your mortgage preapproval and could reject your offer outright without one. Without a mortgage preapproval letter, your offer will stand out ONLY if you're paying cash.

An offer letter should include essential details of the sale, such as the address, your offering price, contingencies, closing cost information, earnest money amount, mortgage preapproval letter, and a deadline.

Sellers can (and often do) reject full price offers. But you can also negotiate with them.

Yes, most buyers expect a counter offer. For this reason, many buyers make an offer with wiggle room.