How to Make an Offer on a Home

There’s more to an offer than just the price. Buyers have to consider everything from earnest money, contingencies, expiration dates, and more.

Once you’ve found a home that you want to buy, it’s time to prepare and submit your offer to the seller.

But how do offers work and what are the first steps you should be taking as a buyer?

While there’s no doubt that you’ll want to make a winning offer, read on to learn about how they’re structured, key considerations, how the offer process works and what to expect.

Make Sure You’re Prepared

Before you make your offer to purchase a house, you’ll likely know whether you’re paying in cash or through conventional financing.

All-cash offers are definitely less complex. You simply need to have the necessary liquid cash amount available for transfer, as well as a way for the seller to verify the funds exist.

Cash offers generally take less time to close since there are fewer requirements compared to working with a lender. If you’re paying with cash, expect sellers to be more interested and responsive to your offers.

But making an offer with conventional financing introduces a few more moving parts.

If you plan on financing the deal, even before you start looking at houses, you really should have a recent preapproval letter in-hand from your bank or lender. This letter tells to you, and verifies to your realtor as well as to sellers, that you have the necessary means to purchase a house up to a certain amount. Preapproval letters let everyone involved know that you’re a serious buyer and that they’re not potentially wasting their time.

Also keep in mind that buying a home with financing takes substantially more time than when paying in cash. Particularly in an area like Harbor Springs, where the local market is usually competitive, you should be prepared to find ways to strengthen your offer.

Finally, all buyers should always have enough liquid cash available for an earnest money deposit (often referred to as the “EMD”). More on this below.

Basic Structure of an Offer

Offers to buy real estate have several standard details that include the following:

  • Offer Price
  • Amount of Earnest Money
  • Type of Financing
  • Contingencies
  • Closing Date
  • Expiration Date

Residential offers are constructed using a real estate contract known as a Purchase Agreement or simply “PA” for short. Usually, agents will use a standardized form template from their brokerage or local real estate board.

On the other hand, offers to purchase commercial property are often constructed with custom purchase agreements that are much more specific.

Also, unlike many other agents or brokers do, we always be encourage buyers to have a trusted real estate attorney review their PA before signing and submitting.

Decide on Your Offer Price

It should go without stating that your goal will be to purchase the property for as little as possible. But the price that you decide to offer will depend on many factors.

Working together with your agent, you will consider the competitiveness of the current market, the apparent motivations of the seller, as well as your own circumstances.

You’ll then have to decide whether to offer below, at or above the list price.

It’s important to consider how the amount of your offer will be interpreted by the seller. Keeping your goals in mind, you want to be careful of not to stray too far from the list price without valid reasons.

As a buyer, you should rely on your agent and other trusted advisors to make an informed decision that’s best for you.

Earnest Money Deposit

An earnest money deposit is a relatively nominal amount of money that demonstrates to the seller your level of commitment.

Typically, earnest money amounts equate to about 1%-3% of your offer price. But the amount you offer is entirely up to you. You may offer more when you’ve very motivated, or offer less when you’re not.

Earnest money is specified in the PA and will be paid or “deposited” when an offer is accepted. If the purchase goes through, the amount is deducted from the final price.

If you decide to back away from the deal AND your reason for doing so is covered in the PA, your earnest money deposit will be fully refunded to you. This is why the conditions of your contingencies are so important.

Contingencies

Contingencies are very important clauses in your PA that set certain conditions on your offer.

As a buyer, you will use your contingencies to help you back out of the deal when the conditions aren’t met (or “satisfied”). In such cases, your earnest money deposit will be returned under normal circumstances.

While contingencies can take just about any form a buyer decides, the most common include the following:

  • Inspection Contingencies: A licensed inspector will evaluate the condition of the house and uncover most minor and major problems.
  • Mortgage or Financing Contingency: Sets a condition that you must be able to qualify for a loan. This is an essential contingency if you’re getting a mortgage for the purchase.
  • Appraisal Contingency: In most cases, your lender will order a professional appraisal to determine the fair market value (FMV) of the home. This condition lets you back out of the deal if the home appraises for less that a certain amount (loan or sale amount).
  • Title Contingency: Titlework is a common part of almost every real estate transaction. The title is simply the history of ownership going back a number of years. It uncovers exactly who owns the property, and whether any judgements or liens exist that could jeopardize the sale.
  • Home Sale Contingency: Probably the least popular contingency with sellers is the home sale contingency This condition stipulates that you must be able to sell your current home within a number of days before completing the new purchase.

As a general rule, seller’s don’t like to see contingencies. The fewer you add to your offer, the more attractive it will be to the seller.

Submitting Your Offer

Once you are satisfied that your offer is ready, you will sign and date the offer to purchase contract/agreement.

Your signing can take place in person (i.e., with a printed copy signed in ink), or can be done entirely online using a computer, tablet or phone. It all depends on your level of comfort.

Finally, your agent will present your offer to the seller’s agent (or sometimes to the seller directly).

After the buyer has received your offer, they have several options for responding:

  • Accept: Accept your offer as-is by signing the PA without any changes.
  • Counteroffer: Submit a counteroffer by changing, adding or removing certain details or conditions from your offer.
  • Reject: Reject your offer outright.

It’s important to know that a counteroffer is really a rejection of your previous offer, and then considered as a new offer from the seller. Put simply, a seller’s counteroffer is their offer to you, the buyer.

Waiting for the Seller to Respond

The offer process can be an anxious time for buyers. There’s often a lot of waiting for a response and “dead air” from the seller’s side.

Patience is key but that is easier said than done!

We suggest that buyers keep themselves as busy as possible during this time. Get outside if possible, do physical activities, or socialize with family and friends.

Keeping busy not only occupies your time, it also keeps you looking forward which is very important.

Seller’s Response and Negotiating

When your agent gets a response from the seller’s agent (or the seller directly), it will usually be in writing.

Your agent will immediately review the response, check that it’s signed, and clarify any items that might be vague or unclear. They then will contact you to present or forward the seller’s response.

Unless your offer was accepted outright and as-is, you will be faced with likely negotiations and more decisions.

This is when you should rely heavily on your agent’s ability to strategize and negotiate in order to finalize your deal.

But getting your first offer right is very important. According to a recent Zillow Group Report, nearly 60% of buyers had to submit multiple offers before successfully purchasing a home. This makes home buying more challenging.

Accepted Offer, Due Diligence and Closing

Upon reaching a mutually acceptable offer with the seller, your agent will make sure that all documents are properly signed, dated and submitted.

It’s now time to start your due diligence. You will order the title work, hire and schedule a home inspector, and finalize your loan with your lender. They also will schedule an appraisal at this time.

Expect this period to last anywhere from 45-60 days in normal circumstances. Cash buyers will easily be able to cut this time in half. In either case, sometimes personal schedules, holidays and even weather can influence this timeline.

Once all your contingencies are satisfied and every condition is met, you’ll move on to the final closing process before taking possession.

All content on this website is for information purposes only. Any information contained herein is not intended to provide legal or financial advice, nor does it create an agency relationship. All information is made available without any guarantee, warranty, or representation of any kind. It is your sole responsibility to seek the services of your own legal, financial, accounting, and real estate professionals prior to any such related decisions or transactions.

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