Making an Offer on a Home: 5 Steps to Closing the Deal

Published on December 27, 2016

– 12 min read

You knew this time would come, but what does “make an offer on a home” really mean?

How do I determine the offer price?

The first step is to set your offer price. How much are you willing to pay for the house? How do you even figure that out?

Your realtor will find other properties that recently sold. These houses should be comparable to the one you want to buy. This process is called “pulling comps” for short. They will look for houses in the same neighborhood that are similar in size, have a similar number of bedrooms and bathrooms, and are in generally the same condition as your desired property.

    Pro-tip: has a search feature that can help you pull your own comps. It allows you to search an area for recently sold homes.

Based on those comparable prices, your realtor will make adjustments to account for things like recent moves in the market, other listings in the area, or differences between the comps and your target home. For example, if a comp has a pool and the home you’re bidding on doesn’t, the realtor will adjust the comparable price down.

Once they have finished this process, your realtor will present this information to you. They will lay out the comps, explain why they chose those properties, and walk you through the adjustments they made. From there, you’ll work together to settle on an offer price.

How do I make an offer on a home?

We’ll start with the mechanics. The actual offer itself is a piece of paper. Your real estate agent will have a standard agreement to use and will help you fill it out. The agreements vary from state to state, but you can check out a sample offer, officially called the “California Residential Purchase Agreement And Joint Escrow Instructions.” Just because the agreement is standard doesn’t mean you shouldn’t read it! There are a lot of little details that you should know about.

Purchase offers for a home usually spell out a few things:

Basics – Your name, the address of the property, and the price you’re willing to pay (the offer price.) These are the easy questions. Bask in the fact that you know how to fill this out.

Real estate agents – You call out who your agent is and who the seller’s agent is. Another softball, you’re doing great!

Escrow terms – Now come the harder ones. Exchanging money for the property can be sticky. To avoid issues, a neutral third party handles the exchange — usually a title company, an escrow agent, or an attorney. In the offer, you’ll set a date for the transaction to take place. This date is called the “close of escrow.” Everyone has to have their responsibilities complete by this date so the transaction can close. Since you are getting a mortgage, you’ll want at least 45 days before closing escrow. Your real estate agent or loan officer may recommend a longer period (60 to 120 days) depending on your situation or the seller’s preference.

Earnest money – When you submit an offer on a house, you actually have to put some money on the line. A lot of first-time home buyers are surprised by this. This money, called an earnest money deposit, proves to the seller that you’re a serious buyer. On average, you’ll need 1-3% of the home price as earnest money. That money will either be given to the escrow company or to your realtor, who will then give it to the escrow company.

If the deal falls through, your earnest money may or may not be refunded to you. It depends on why the deal failed and how your agreement is constructed. Before submitting an offer, make sure to ask your realtor about how much earnest money is required, whether you will receive it back or not!

Financial terms – This is where it helps to not only be pre-approved for a home loan, but to have a lender that knows your particular situation. You’ll have to spell out what type of financing you will use to purchase the home. You may also have to provide bank statements to prove you have the cash for your down payment and closing costs.

Who pays for what – There are a number of inspections, reports, fees, and taxes that will be required to complete the purchase. Who pays for these items is negotiable, and it is defined in the offer. Your realtor can advise you on how to handle this. In a hot market, you may end up paying for these items to make your bid more attractive. In a buyer’s market, or with a home that is more likely to have issues come up during inspection, you can get away with asking the seller to cover these costs.

Occupancy – Here’s another curveball for you—you may not be able to move into your new house immediately after you buy it. Sometimes the seller will need time to find a new home. In those cases, you may jointly agree to rent the house back to them for a period of time. Being flexible with your move-in date can be a big advantage when crafting an offer.

Included items – There are a number of things (think appliances, washing machine/dryer, light fixtures, etc.) that may or may not be included with the purchase. What’s included and excluded in the deal is spelled out with your offer.

Title & vesting – This part is really important. It lays out what everyone is required to do according to the contract. If any of these things don’t happen, the deal can fall apart. If it’s your fault as a buyer, you may lose your earnest money deposit. Make sure to cover this section with your realtor. Also, go over the sections of the offer that cover remedies for breach of contract and dispute resolution. It’s always good to at least understand what happens if things go south, even if they probably won’t.

Legal stuff – These agreements have a ton of legal language. Disclosures are included so that everyone knows their rights, and to ensure that the buyer understands all the potential risks of buying the property. The house may have lead paint, natural hazards, etc. In a place like California, it could also be at risk for earthquakes, flooding, brush fires, natural gas explosions, or any other natural disaster. (California really is a magical place.) The seller can be in trouble if they don’t alert you of these risks, so they’re included in the offer.

Once your offer is squared away, you’ll put that together with your earnest money deposit, your pre-approval letter, and any other supporting materials (like a handwritten cover letter.) Your realtor will take this to the seller’s agent, who will submit the offer to the sellers. And then you wait (anxiously) to hear back.

Offer & counteroffer process

The seller’s agent is legally required to present your offer to the seller within a few days. Still, waiting for a response can make the most hardened home buyer hyperventilate. Your emotions might swing from, “If they don’t accept my offer I’m just going to rent forever because no other house will ever compare” all the way to, “The house was an ugly color anyway, and it was small, and it smelled funny. They can keep it…” It’s a fine line between being excited and becoming too emotionally invested. Try your best to stay cool, calm, and collected through the negotiation.

Eventually though, you will get a call from your agent. After all that build up, your agent has a counteroffer. Unless your offer is perfect, with everything the seller wanted and then some, they’ll probably have some revisions.

A lot of small back and forth negotiating can be draining for everyone. Pick your battles when responding to the counteroffer. Be up-front with your expectations, lay out what you’re willing to negotiate on, and be firm with your non-negotiable items.

If you go through this entire process and the sellers ultimately decline your offer, try not to get too discouraged. According to the National Association of Realtors, in 2014 the average buyer spent 10 weeks looking for a home, which doesn’t include the time the property spent in escrow. Buying a home can take months. Remember, it’s a marathon, not a sprint.

Bidding in a hot market

In some places, the markets are hot. During the spring home buying season, they can get really hot. Like 20-offers-on-every-listing hot—it’s a feeding frenzy. Buying a home in these areas can feel like an endurance challenge. There are no guarantees, but here are a few things you can try to make your offer stand out:

  • Be ready to make an offer quickly – If you hesitate in a hot market, someone is going to buy that home you fell in love with. Have your proverbial ducks in a row and be ready to make a move quickly.
  • Get pre-approved – Consider two identical offers: one with a lender’s stamp of approval for a certain purchase amount, and another where the buyer hasn’t even spoken to a loan officer. Which offer seems more likely to close on time? All things being equal, the seller will usually take the least risky offer.
  • Submit a strong offer – Don’t overextend yourself, but submit a strong offer out of the gate.
  • Understand the seller’s needs – Does the seller need to rent the property back after the sale? Or do they need to close within two weeks? Learn about their expectations as far as price, timeline, and negotiable items like fees and fixtures. Being accommodating can be a huge advantage.
  • Make it personal – Buyers often underestimate the power of a personal connection. Many sellers have a deep, emotional connection to their homes. They may care about what’s going to happen to it when they leave or how their neighbors will be affected. Write a letter to go with your offer. Explain who you are, why you love the property, what your plans are for it, and why you love the neighborhood. A personal touch like this may help you stand out.

Bidding wars

In some cases, you may find yourself in the dreaded “bidding war” with another buyer. Don’t get too caught up in it. Anyone who has bought something on eBay knows how easy it is to get swept up in the excitement. You want to “win” the house. But if you offer more than you can afford, you’re throwing away your earnest money. You also may be wasting time, which is hardly a win at all.

Why real estate agents matter

Realtors sell expertise. The offer process is a realtor’s time to shine. Their advice during this phase can be the difference between moving into your dream home or not.

A great realtor will also keep you from getting too caught up in a bidding war. Your realtor will handle the actual negotiating process, going back and forth between you and the seller’s agent.

You can easily lose your earnest money if you don’t craft the offer carefully. If you don’t do a key inspection or don’t adjust your offer based on the outcome of some inspections, this can be a costly mistake. In many cases, there is tangible and financial benefit to working with a great realtor.

An offer accepted

Oh, joy of joys, the seller accepted your offer! It’s awesome, scary, and incredibly exciting. Now it’s off to the races. You have until your close of escrow date to get that home loan!

Ready to get started? Get pre-approved completely online or chat with one of our Loan Specialists.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
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