Making an Offer on a House
Buying a house can be a stressful and time-consuming experience, so here's a guide to help you decide how much to offer, whether you should add conditions to your offer, how to deal with multiple offers and how to respond to counter offers.
Deciding How Much to Offer
Making an offer on a house is difficult because if you bid too low, others will outbid you; if you bid too high, you'll be throwing money away. Here are some things to keep in mind when making an offer on a house:
- How much house can you afford: This should be the #1 factor when house-hunting. You can't offer more money than you can borrow, so secure a loan before seriously shopping around. Also, don't forget to include the closing costs when deciding how much money to borrow. Closing costs can amount to up to 5% of the price of the house.
- The seller's price: Your offer will of course be highly dependent on what the seller asks for in the first place. Sellers typically follow one of three paths. First, some sellers overprice the house to give them substantial room to negotiate. Second, some sellers just price it according to what they think they can get and don't really want to haggle. Finally, some sellers under-price the house in the hopes that it will attract many buyers and create a bidding war.
- Prices of comparable houses: To really get a good idea for how much you should offer, find out how much comparable houses sold for in the area. To ensure that it's really comparable, a similar house should have sold within the past six months, be in the same neighborhood, and be similar in terms of age, size, and number of rooms.
- The real estate market: This can make a huge difference in terms of what you should offer. During hot markets, expect irrational bidders who drive up house prices considerably. Similarly, in down times, you can safely offer less than the house is really worth.
- Is the house uniquely valuable: People often overlook this, but if the house has some special traits that make it uniquely valuable to you, consider offering more than you really think it's worth to ensure that you get the house. These special traits could be sentimental or practical, such as proximity to schools.
- The seller's position: Always consider the seller's position when making an offer on a house. If you were a seller, would you be willing to take a little bit less if someone agreed to close the deal quickly and came with a loan preapproved? Some sellers need to close quickly, so having everything ready to go can make the difference between a winning offer and a losing one. Be flexible and try to play to the seller's needs when making an offer.
Adding Conditions to Your Offer
You should definitely add some conditions to your offer in order to protect yourself, but keep them to a minimum. Typical conditions to an offer would be that your offer depends on the house passing certain inspections, that sale of your own house be completed first or that you qualify for the loan you plan on buying the house with.
Dealing with Multiple Offers
In a hot real estate market, it can get very competitive when you're bidding against other parties. One strategy is to simply bid on multiple houses. In most states you can legally do this, but if you ever find yourself with simultaneous acceptance offers, you need to immediately revoke the offer for the house you don't want.
Another option is to make multiple bids based on how many people are competing for a house. Make a low bid on a house if you're the only bidder, a normal bid if there are only two or three other buyers and a high bid on a house with multiple bidders.
Set monetary limits before you start bidding, and put in place strict rules for when you'll walk away. Finally, consider attaching a cover letter to your offers that briefly describes you and how you plan on taking care of the house, property, etc. Sometimes owners are more interested in someone who understands the uniqueness of the house or who promises to take good care of it.
How to Respond to Counter Offers
Typically, most sellers won't accept your offer outright, but instead will provide you with a counter offer that changes the price, the closing date, occupancy deadlines, or any conditions you set forth in your offer.
You can accept, reject or present your own counter offer to the new offer. Make sure to set a time limit for accepting your new offer or offering yet another counter offer. There will be no contract formed until one side simply accepts the other's latest offer without modification.
About to Make an Offer on a House? Get a Free Legal Evaluation
Buying a house will be one of the more stressful and time-consuming endeavors of your life, but also among the most satisfying. So it makes sense to do it right and understand what you're getting into first. Consider getting a free legal evaluation from a real estate attorney today.