When all of your house hunting leads you the the perfect home, it’s time to get down to business. To make an offer on a house is no a small thing—after all, it’s one of the biggest purchases you’ll make in your life—so it’s important to know what you’re doing.
Luckily, there are tools and experts to help you understand the fair value of your future home, deal with your finances, make your offer more compelling, and protect your money. From down payments to contingencies, escrow accounts to counter offers, here’s a step-by-step guide to understanding the process, enlisting expert help and figuring out how to make an offer on a house you love.
1. Do your local market research.
To come up with a reasonable price, you need to know about two things: the local market and the seller. You can get information on both from Trulia (by looking up the ZIP code’s Stats & Trends, and by searching the home’s address) and from your real estate agent.
Start by researching local selling prices for homes comparable to the one you’re looking to buy. This will give you an idea of the fair market price. Also, check the history of the property — when the seller purchased it, and for how much. A seller who bought a home several years ago and has seen some appreciation in its value may be more willing to negotiate on price than a homeowner who purchased a home more recently.
If you are working with a real estate agent, which we highly recommend, ask for his or her input on what you should offer. Your agent should have extensive knowledge and experience on comparable home transactions and the best offer strategy for the particular home you’re interested in.
2. Get pre-approved by a lender.
Unless you’ll be offering to pay cash for a home (and few of us can), you’ll need to take out a mortgage—and sellers often want to be assured that you can get one. When you are pre-approved by a lender before you submit your offer, you have a guarantee that they are willing to lend you a certain amount under specific terms and conditions. A seller will take an offer from a buyer who’s been pre-approved more seriously than one who hasn’t.
3. Seek guidance from your real estate agent.
With so many moving parts in a real estate transaction (and so much confusing terminology), you’d be smart to get the assistance of a real estate agent and a real estate attorney to protect your interests. You also want to make sure that your written offer meets legal requirements. These requirements vary state from state—there’s no universal contract.
An offer can be presented in what’s called a “Purchase Agreement.” This document should include: the date of the offer, the address and description of the property, the price offered for the home, finance terms (loan details, the amount of the deposit/down payment), escrow details, closing date, possession date, and any contingencies (clauses that allow a buyer to cancel a contract without penalty).
You may want to include contingencies like the right to have the home appraised and inspected, or making the offer contingent on the buyer obtaining financing and acceptable results of a home inspection.
You should fully understand your offer before signing it, so discuss with you any questions or concerns you may have about your contract with your lawyer.
4. Protect your money in escrow.
Your purchase agreement should note how much you’re willing to offer for a down payment.
Arrange to have the deposit held in an escrow account (not with the seller), so that your money can be returned to you if the offer falls through. If the offer is accepted, the deposit will be deducted from what you owe the seller at closing (when the sale is finalized).
5. Seal the deal.
When you’re ready, deliver the offer to the seller or to the seller’s real estate agent. Then it’s up to them. The seller may be decide to accept the offer, reject it outright, or submit a counteroffer.
If the seller makes a counteroffer, he or she will suggest changes like a revised sale price or possession date. You can accept the counteroffer, or submit one of your own. This process will continue until the seller and the buyer mutually agree, or until the offer is rescinded. Once an offer is accepted by both parties and signed, it becomes a binding contract, so it’s imperative that you work with your lawyer throughout the process and understand the offer’s contents fully before signing.