How To Make an Offer on a Home
“Home is the nicest word there is.”
—Laura Ingalls Wilder
We’ll get right down to it: Shopping for a home is fun. But once you find “The One,” things start to get real—real fast. Think of making an offer on a home as setting the roller coaster in motion: You might have sharp drops in emotion and slow, trudging climbs to success, but the ride won’t end until the car slows down and the safety bar is lifted. (OK, this metaphor is now officially over.)
You need to learn how to make the right offer, the one that will end with your receiving the keys to your new home. So check out some of these agent-approved negotiation tactics to make the process a whole lot less bumpy.
Pick the right price
Just because the home is listed at $300,000 doesn’t mean it’s actually worth that much. It all depends on the market. If you’re buying somewhere hot—especially in places with low inventory—offering substantially below asking price is “probably wasting your time,” says Mindy Jensen, a real estate agent with Equity Colorado. But if the place has been sitting unsold for a few months, even the sellers probably don’t expect full price. Your best reality gauge is to check out comparables, or “comps.” This is what nearby homes of similar size have sold for recently.
Work with your real estate agent to determine a fair asking price; he or she will have the best read on pricing and marketplace dynamics and can walk through the comps with you. Your agent can help you determine what a fair discount would be without offending the seller.
While specific numbers will depend on your market, experts estimate that it’s unrealistic to go below 5% of the list price unless it’s been sitting on the market for months. Which leads us to…
Lowball with care
Sometimes a home is priced just too high—no ifs, ands, or buts. Or maybe it’s been sitting unsold for half a year. In those situations, an offer well under asking price might be the right strategy to get the home you love at a bargain price. However, this is a tool to be deployed rarely and with great care, especially if the current owners have lived there for many years.
“Longtime owners usually have tons of pride in their home, and want the new owners to love it like they do,” says Jodie Burns, a real estate agent with McEnearney Associates. “Buyers who lowball run a risk of angering the seller and losing the home. Ideally, you’re looking for a closing where both sides feel like they got a fair deal.”
So don’t lowball unless both you and your real estate agent agree that it’s the best strategy for the occasion. Think about the big picture: “If a couple of thousand dollars is going to keep them out of a home they love, I remind buyers how little that amount translates into a monthly payment,” Burns says.
Pony up some earnest money
Also known as “good-faith money,” earnest money is a sum put up by the buyer and generally held in escrow or trust to show the buyer is serious about purchasing the home. There is no defined amount, but earnest money generally runs at about 1% to 2% of the purchase price.
When the purchase is complete, that money is applied toward your down payment or closing costs. If the contract doesn’t go through, there are guidelines that vary by state that determine which party will be awarded that money. One way to get back your earnest money is to add contingencies to your offer.
Consider contingencies:
Along with the price, you’ll also want to factor contingencies into your contract. Contingencies are requirements that must be met before a real estate deal can close, set and agreed upon by the buyer and seller. For a buyer, here are some of the most common contingencies you’ll want to consider:
Home inspection contingency
This gives buyers the right to have the home professionally inspected. If anything falls short, you can request that it be fixed—or you can back out of the sale. It’s rarely advisable to waive an inspection contingency. Although the average home inspection costs $300 to $500, it’s a drop in the bucket considering the costly home issues it might uncover.
Financing contingency
This contingency gives you the right to back out of the deal if your mortgage approval falls through. You have a specified period, stated in the sales contract, to obtain a mortgage loan in an amount, and at an interest rate, specified in the sales contract. If despite your effort, you can’t get the loan, this contingency means you are entitled to terminate the deal (and receive your earnest money back).
Home appraisal contingency
With this contingency, a third party, typically hired by your mortgage lender, evaluates the fair market value of the home. If the appraised value is less than the sale price, this contingency enables you to terminate the deal—again, without forfeiting your earnest money deposit. (Your lender might not grant you the mortgage loan anyway, when the home appraisal comes in below the sale price.)
Sale of your existing home (if you have one)
If you already own a house, then you may want to include a contingency that you must sell this home before you close on your new purchase.
That way, you won’t have to pay for two houses at once!
There are more contingencies to consider, and they all serve to protect your interests, so work with your real estate agent to decide what you’ll ask for off the bat. That said, since contingencies can make your offer less appealing to a seller, consider dropping some requests if the market is hot. As Jensen explains, “Your chances are best if you ask for the fewest things.” Don’t put yourself at risk to get the home you love, though. Some people might advocate dropping the inspection clause to sweeten your offer, but that can be dangerous, especially with older homes.
Keep your emotions in check
Yes, the search seems to have dragged on forever; yes, this home has everything you need. But keep your wits about you.
“Don’t fall in love,” Jensen says. Becoming too attached to a home can make you do ill-advised things, she adds, “Like overpay.”
And sometimes, even an “excellent offer may not be accepted,” says Vici Boguess, a real estate agent with the Burke Boguess Zimmerman Group in Alexandria, VA. Don’t assume a rejection is an insult—the sellers might just dislike some of your contingencies or be holding out for a better offer. So, don’t assume it’s over until it’s over.
Plus: 6 things you should never say when buying a home
While you can (and should) always be upfront with your real estate agent, you might not want to be quite so candid around the sellers (or the listing agent working for them). The reason? Just like in Law & Order, what you say can—and will—be used against you. So before you stick your foot in your mouth, during your house hunt or your negotiations, consider these bloopers that you should never say to sellers or their agents.
“This is my dream home!”
Do you ever play poker? Well, then, you should know that if you want to maintain a strong negotiating position, never tip your hand. Interested parties who express their unbridled passion for a home are shooting themselves in the foot.
“These are the kind of things that can help the sellers snag more money out of the buyers, because they really know how much this home means to them,” he notes. “All discussions about the house and any negotiating strategies are best left in private.” Not that you shouldn’t say a few nice things—just don’t gush. Gushing = bad.
“That couch is hideous”
“Don’t tell the sellers—or any agent present—that they have poor taste in decor or furniture,” says Naveed Shah, a real estate agent in McLean, VA, with Keller Williams. “Their style might not suit yours, but that’s no reason to insult them. If they hear you bad-mouthing their rug or curtains, then they might just pick another buyer.”
“I can afford to spend x”
While it’s certainly a good idea for prospective buyers to find out just how much they can afford, they should keep that intel strictly between them and their real estate agent.
“A prospective homebuyer should never address with a seller or seller’s agent anything concerning their financing or ability to pay a full-price offer,” says Maryjo Shockley, a real estate agent with Keller Williams in Wellington, FL. “This hampers the ability to negotiate the fairest price for the property.” If asked, just say, “Finding a fairly priced home is what matters to us more than the amount we can afford.” It works!
“I can’t wait to get rid of that”
Even if you’re thinking, “This place will be perfect once I get my hands on it,” don’t let on, notes Betsy Bingle, an associate broker with Linton
Bingle Associate Brokers in Jackson, WY.
“If the new buyers are going to renovate a home in which someone raised a family and has truckloads of memories, a buyer should never say ‘I can’t wait to rip that swing set out,’ or ‘That wall color is horrible can’t wait to repaint this place,’” she says.
“The seller can easily reject their offer or come back asking for more money, upon hearing that someone wants to totally remake the place where they made lifelong memories,” she adds.
“Why are you selling?”
Yes, you may very well be curious to find out why sellers have put their home on the market. Keep it to yourself! It’s considered poor taste to ask, and it may open a can of worms.
“Never ask the sellers why they are selling,” explains Klara Madlin of Klara Madlin Real Estate in New York. “There may be personal reasons like divorce or a job relocation or something worse—none of it your business.” Opening up a possibly uncomfortable situation will not help you down the road should a bidding war emerge.
“You’ll never get that price!”
Although you might be thinking “I wouldn’t give them x amount for that house,” as a buyer, it’s best for you to keep your thoughts and opinions to yourself, notes Cara Ameer, a real estate agent with Coldwell Banker in Ponte Vedra Beach, FL. Even if a buyer thinks a home is priced on the high side, it could very well be within the range of comparables in the neighborhood.
Bottom line? It’s never wise to insult the person whose home you’re trying to buy.
