Buying a Home: Write an Offer

If you’ve found that perfect home, congratulations! You’ve potentially reached the end of the search process – but first you’ll have to write an offer and the seller will have to accept it. Here are some important factors to consider when writing your offer to maximize your chances of getting the property you want at the price you want.

Consider Market Conditions in Your Submarket

When evaluating the market, ignore the national, regional and even city news. The only thing you need to know is, what is the market like for the neighborhood, price range and housing type you’re buying?

Home prices may be depressed overall, but perhaps you’re in the market for a bargain-basement foreclosure and that’s the only segment of the market that’s seeing multiple offers within days of listing. There are submarkets even within submarkets. Your real estate agent will be an indispensable source of valuable information on this topic.

What Are You Willing to Pay?

Think about how much you’re willing to pay and what constitutes a fair price for the home. By examining what are called comparable sales (homes similar to the one you want to buy in terms of location, size and amenities) you can get a sense of what the market says is a fair price for the home you’re considering.

But what is a fair price to you? If the home is uniquely valuable to you, you might see nothing wrong with offering full price (or even more than the asking price) to make sure no one beats your offer, regardless of what the market says you should offer. In many situations, simply offering full asking price with reasonable terms will be enough to get your offer accepted immediately.

Or maybe, if you like the home well enough but you don’t love it, you could be convinced to love it at a low enough price. In this case, you might want to make a lowball offer and see what happens. This strategy can be risky, though, because if can offend the buyer or get you outbid. So for a house that you really love, it may not be a good strategy. (To learn more, read 10 Tips for Getting a Fair Price on a Home.)

Determine Your Highest and Best Price

You may not know whether other people are placing offers on the home when you’re writing your offer. If the seller gets multiple offers, he or she may go back to each potential buyer asking for highest and best offers. Decide at the outset, while you are still thinking somewhat rationally and before a potential bidding war arises, what the maximum you’d be comfortable and happy paying for the home is.

What Do You Want from the Seller?

In a slow or average market, it is normal to ask the seller for some perks in your offer, called seller concessions. These could include having the seller credit you a certain percentage of the purchase price toward your closing costs or having the seller give you the kitchen appliances or washer and dryer. If you’re going into the home-buying process with limited cash in the bank, you may decide at the outset that you’re not going to buy a home until you find a seller who will pay your closing costs (which will total thousands of dollars).

The seller won’t necessarily give you everything you ask for, but it doesn’t hurt to ask unless you make such a ridiculous request that you offend the seller into not entertaining your offer at all. In a seller’s market, however, you won’t have much bargaining power. You may have no choice but to pay closing costs and bring your own fridge.

Choose Your Closing Date

Your offer will state how quickly you want to close on the home. You may be thinking, “I’d like to move in tomorrow!” but because of the legal and financial aspects of purchasing a home, a 30-day closing is standard. If you’re paying cash or if the lender says it can make it happen, a 15-day closing may be possible and may make your offer more competitive. A 60-day closing is also not unreasonable and a seller who needs to move to a new home might prefer a longer closing.

A closing date at the end of the month will reduce the amount of cash you need to close the deal because of prepaid interest. Mortgage payments are made on the first of the month to cover the previous month, so your February 1 mortgage payment will pay for the month of January. But if you buy a house on December 20, you won’t make a partial payment on January 1 – instead, you’ll pay that money on December 20, then make your first mortgage payment on February 1. There’s nothing wrong with prepaid interest because you’re getting what you’re paying for. It’s just that many home buyers are tight on cash and would rather have that 30-day cushion before they start making any mortgage payments. Keep these considerations in mind when coming to terms on a closing date. It's unusual for the date to be a dealbreaker.

Choose Your Contingencies

To protect yourself, you should include contingencies in your offer. These are clauses that let you walk away from the purchase without financial or legal penalties in certain situations. An inspection contingency means that if the home inspection reveals substantial problems, you can walk away. A financing contingency means that if you can’t secure financing, you can walk away. (If you were paying cash, you wouldn’t have a financing contingency.) There will also be a time limit on the contingencies, such as 14 days, to keep the process moving along and prevent the seller from losing too much time if you back out.

Read the Fine Print

Understand the paperwork you will be required to sign. Your purchase offer probably will not be just one page, as you might think, but several pages of detailed (but boilerplate) legal documents. Make sure you understand everything you’re signing. In some states, buyers are required to hire a real estate attorney to make sure they understand the contract. Even if your state doesn't, you might want to hire one anyway. That being said, plenty of people successfully buy homes every day without attorneys.  You might want to save your money unless there’s something unusual about the transaction.

Prepare to Negotiate

Sellers will not usually accept the first offer you write, but will come back to you asking for more money, different terms or both. You then have the option of countering their counteroffer. It’s usually a good idea to be reasonable during these negotiations. Sellers can get emotional and may not want to work with you if they think you’re trying to take advantage of them, especially if they have other offers or the home has only been on the market briefly. On the other hand, it’s just business, and if you want to play hardball, there’s no reason not to as long as you’re willing to accept that some sellers may refuse to deal with you as a result.

Once your offer is accepted, you’ll be under contract and the house will go into escrow. You’ll need to write a check, get a cashier’s check or wire funds to the escrow company as good faith money, also called "earnest money," showing that you’re serious about the purchase and aren’t just going to waste the seller’s time. The good faith money will be counted toward your down payment if the transaction closes. The seller will get to keep it if you back out of the contract for a reason the contract doesn’t cover (for example, if the inspection is fine and you secure financing, but suddenly find a house you want more).

In the next section, you’ll learn what happens during the escrow process.