While your home shopping journey technically started with getting preapproved for a mortgage and looking at houses, it often doesn’t feel official until your agent submits an offer. For a buyer who’s never experienced this step in the journey before, it’s a stressful and exciting moment: If the seller likes your offer, you’ll be a homeowner soon!
An offer letter is your introduction to the seller. You want it to stand out and “wow” them. Standard offer letters contain four essential items:
- Fees and earnest money
Each presents you with an opportunity to appeal to the seller and write an offer that they love.
Losing out on a house that you’re head-over-heels in love with can be crushing, and sellers can be touchy and emotional when selling their home, so here’s how to make an offer on a house that they can’t refuse.
Step 1: Prepare before you buy
Whether you take a few weeks or a few months to prepare to enter the housing market, use this time to better position your eventual offer.
Save up as much as you can so you can feel confident in your offer price and down payment. Sellers typically favor buyers who have more cash to put into the purchase — this reassures them that the deal is more likely to close. As well, if the appraisal comes in lower than your offer price, if you have a cash cushion, you will have more options for how to handle that scenario.
Once you are comfortable with your down payment savings goals, get preapproved for a mortgage. Not only does the mortgage preapproval amount set your budget for home shopping, it tells sellers that you can afford to buy their home. This preapproval limit is especially important in a difficult market.
Byron Ford is an experienced agent in New Bedford, Massachusetts, who works with 76% more single-family homes than the average agent in his area. As of May 2022, his market is very hot, so he tells buyers that in most cases they should plan on offering more than the asking price. Because of this he guides them to search for properties under their preapproval limit.
The market knowledge of an experienced agent will help you both find a great house and write a winning offer. They’ll know what sellers are asking for in your area — from rent-back periods to an extended close date — and what could make your offer stand out. If you don’t know where to find a great agent, try HomeLight’s Agent Match tool.
After you answer a few questions, our tool matches you with several top agents in your area.
Step 2: Find a house
Let the home search begin! For many buyers, this is the fun part. During this step, work with an agent to narrow down your preferences, identify the best neighborhood for your needs, and get a feel for the market.
Drive around and compare areas, tour open houses, and ask your agent to take you on home tours. When you find the right home, dig into its history before making an offer. You’ll want to know how long the current owners have lived there, whether it’s been renovated, and how long it’s been on the market.
This information leads to the next step — what you’re willing to pay for the house.
Step 3: The price you’re willing to pay
When sitting down with your agent to write an offer on a house, you usually start with the amount you’re willing to pay.
Like it or not, this is what matters most to sellers, and negotiations usually start with the offer price. Jesse Zagorsky, an agent in San Diego with 15 years of experience who completes 16% more home sales than the average agent in his area, believes that good agents “never tell their clients what to offer; instead, they educate them and allow them to come around to the price.”
What goes into pricing a house?
How does an agent land on the list price of a home? They analyze several factors.
Comparable recently sold homes
Agents look at recently sold homes in your area with a similar number of bedrooms, bathrooms, and square footage. The sales price of these homes influences the list price of the home you are hoping to buy because comparable properties are typically what appraisers use to determine a home’s value.
The condition of the house
A well-maintained home will sell for more money than one that’s been poorly maintained. If a home needs a lot of work, an agent will advise the sellers to list it at a lower price.
How long it’s been on the market
After a home has been on the market for weeks or months, the agent may advise the seller to drop the list price. Even if they haven’t, consider offering lower than asking if the house has sat on the market for a while. The seller may have become more motivated.
In markets with high demand but low inventory, expect higher list prices. Multiple offers will drive up prices overall, influencing comparable recently sold homes.
If the home is already a good deal, don’t expect the sellers to budge much on price.
Haggling price in a buyer’s market
In a buyer’s market, where there are more houses on the market than qualified buyers to purchase them, you have a stronger negotiating position on price. Robert Andrews, an experienced agent in Medina, Ohio, who works with 67% more single-family homes than the average agent in his area, says, “you can come in with a lower offer and negotiate,” but he clarifies that, “we don’t ever want to come in with an insulting offer. If we insult them, they might not even counter.”
If the home has been sitting on the market for a while, then you also have more bargaining power. The seller might be getting anxious to sell, particularly if they have already made their own offer on another house or need to move by a specific date.
Does haggling on price work in a seller’s market?
In a seller’s market, where the number of qualified buyers exceeds the number of homes for sale, you’re in a much weaker position to haggle on price.
If it’s a desirable property in a great neighborhood, there’s a high probability you’ll end up in a multiple-offer situation. In those situations, Andrews tells his buyer that they might have to “go in high, and we may jump to that top dollar.”
Pricing and lending programs
Sellers want reassurances that the offer will close and that they’re not wasting their time on a deal that will fall through. You’re also more likely to qualify for a mortgage with a higher down payment, and pay better rates, but beware any restrictions imposed by your lender. Some government loans have limits on the purchase price of a house, or geographic restrictions.
Borrowers obtaining financing from some lending programs will also face restrictions that reduce their price flexibility. Many government lending programs for first-time buyers have income limits and price restrictions, as well as loan-to-value requirements for the mortgage. If you’re wondering how to make an offer on a house in that situation, work with an agent who knows the ins and outs of your financing program.
Step 4: Other fees or deposits
Offering to handle closing costs or other fees for sellers can also increase your offer’s attractiveness. Buyers typically pay between 2% and 5% of the full mortgage in closing costs, while sellers pay between 6% and 10%, with the majority of the difference caused by agent commissions. Agent commissions average 6% nationwide, and if you can cover other closing costs for the seller, it could save them money.
You should expect to pay for your closing costs out-of-pocket at closing. If your financial situation permits, offering to pay some of the seller’s closing costs could cause them to view your offer more favorably than another buyer’s. Remember that it’s not just the money you pay them for the house, but the money you save them, too.
Earnest money can also help you stand out. Putting more earnest money into escrow indicates that you’re serious about buying the home, are financially stable, and your mortgage preapproval is unlikely to fall through. Earnest money reassures the seller that they won’t be pulling their house off the market fruitlessly and wasting valuable time. (Beware, though: If you pull out of the contract for any reason not stipulated by the contingencies, then you will lose your earnest money.)
Step 5: Contingencies
All offers contain contingencies, and they’re one area where you can really give yourself a competitive advantage. Common contingencies typically address the home inspection, financing, or the sale of the buyer’s current property. To find out what will appeal to the seller, Zagorsky recommends having your agent call their agent and ask, “Other than price, are there any other variables that are important to the seller?”
Chances are, the seller will want more from the deal than money. Your agent can write the contingencies in your offer to appeal to those desires. Suggesting a flexible close date will appeal to sellers who haven’t found a place to move yet. It takes the pressure off them to find a new home right away. Including a contingency clause related to selling your current home makes your offer less attractive than someone who doesn’t have to wait for their house to sell, so consider whether you can afford to pay two mortgages for a short time. (Or consider a solution like HomeLight Trade-In!)
While Andrews advises that buyers never waive a home inspection, in a truly competitive seller’s market, you could write a contingency clause with either a flat “yes” or “no” after the inspection. In other words, you won’t request that the seller pay for any necessary repairs; you’ll either proceed with the sale or walk away. To sellers, this means that they won’t have to scramble to find a contractor or pay to fix something for the deal to close.
You can also add an informational inspection clause, which means that you will get an inspection on the house, but you won’t be using the inspection to reevaluate your purchase: It’s purely for informational purposes.
In a buyer’s market, you can add more contingencies. In a seller’s market, you may have to pare contingencies down to the bare minimum, such as financing and a home inspection.
Step 6: Timing
The timing of a sale might matter more to a seller than getting top dollar for their house. Sometimes sellers prioritize getting out of their home quickly over their bottom line.
If the seller is relocating to another city or state for a job, they might have a drop-dead date by which they need to be out of the house. The same is true if they have a closing date scheduled for their new home but need the funds from the sale of their current home to close. In that case, if the sale nets them enough to purchase their next home, they might care more about timing than the offer price.
Step 7: Escalation clauses
An escalation clause allows you to beat another buyer’s offer and stay in the game. An escalation clause will bump your offer up over another offer by a few thousand dollars — or more. Typically, buyers put in clauses with escalation in $2,000 to $5,000 increments, up to a cap.
Ford has been using them in his offers and sees little downside to them (as long as the buyer can afford to increase the offer price). In his escalation clauses, he puts “subject to a verified offer,” which means that the seller’s agent has to show him the other offer in writing. He may also add “subject to appraisal,” a clause that protects the buyer from having to make up the difference in cash if the home doesn’t appraise.
Step 8: Forging a personal connection with the seller
In a competitive market, Zagorsky recommends writing a cover letter. The letter should explain why you love the seller’s home and why you want to live there.
It’s essential to run any letters past your agent to avoid violating Fair Housing laws. These laws prohibit discrimination in home sales based on race, sexual orientation, or other protected classes. And they’re not common everywhere (and even illegal in some areas), so you’ll want to make sure you are using your time wisely.
Executed well and under the direction of a qualified agent, however, they can help the seller forge an emotional connection with the buyers. One of Zagorsky’s clients connected so well with the seller, bonding over a shared school district and their kids, that the seller accepted an offer $40,000 less than another offer. He points out that this isn’t the norm, but a good cover letter rarely hurts.
Offer letters aren’t legal in every state — Oregon recently banned them — and city, so be sure to follow your agent’s advice.
Step 9: The offer process
After you and your agent have nailed down the offer specifics, your agent will deliver the letter to the seller’s agent. It must be signed and in writing, as it’s a legally binding document.
The following goes into an offer letter:
- Your name
- The seller’s name
- The home address
- Offer price
- Timeline for a home inspection
- A financing contingency
- Any other contingencies, or contingencies that you’re waiving
- Suggested closing date
- Deadline for the seller to respond
The seller will either accept your offer, or negotiations will begin. Once you’ve mutually agreed upon all terms and conditions, your agent will draft a final offer letter if necessary, and all parties will sign. Then you move forward to the home inspection, appraisal, and finalizing your mortgage.
Step 10: Can you make your offer stronger?
Whether you’ve lost out on a few homes and really want to find a place, or it’s your first time making an offer but you can’t stand the thought of losing, here are a few more ways to make your offer stronger.
Can you make a cash offer?
If you can pay some or all in cash, it increases your odds of acceptance in both a buyer’s and a seller’s market. Cash offers have been growing more common. In the past two years, Ford says that he’s seen an uptick in these offers.
If the seller values a faster or more certain closing date over the price, they might even prioritize your offer above a higher-priced one with less cash.
“Most cash offers can close as fast as the closing attorney can get the title back,” says Ford. “I’ve had them close as fast as 7 to 10 days.”
Can you put more money down to cover a possible appraisal gap?
In recent negotiations, a seller wanted the buyer to guarantee that they would make up any appraisal gap. This means that, if the house doesn’t appraise at the sales price and the buyer can’t get a mortgage for the full amount, the buyer has to pay the difference in cash. Ford’s buyer negotiated and landed on a compromise.
“We said we could go up to $25,000 in cash over the appraised price,” he explains. This is where shopping below your preapproval amount and having extra cash in the bank comes in handy.
Can you offer a rent-back period or reconsider adding an escalation clause?
A rent-back period permits the sellers to remain in the home for a set time after closing — it can be anywhere from one to two weeks to as long as 60 days. Sellers may want the extra time to pack and move, or to find a new home, and this clause could sway them toward your offer. While you own the home, you can’t move in until the period expires.
If you previously ruled out escalation clauses, reconsider them. Talk to your agent about adding protections around the clause — such as an appraisal contingency or a cap on how high your offer can escalate — to get more comfortable with them.
What happens if you give it your best, but don’t get the house?
Zagorsky tells homebuyers to handle a rejection with “poise, dignity, and grace.” Sit down with your agent and discuss what didn’t go right, then strategize for the future.
In 2022, it’s not uncommon to make several offers before one is accepted. Each will be slightly different, but if you’re working with a good agent, eventually you’ll be moving into your new home.
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