Tips to Make the Best Offer on a House
You have perhaps done all the house hunting and visited countless house viewings alongside your estate agent. In the process, you have come across an affordable dream home. After investing plenty of time in the house-hunting process, you may be anxious that you might lose the house or make a little offer.
At the very least, if it’s your first time moving house, there is no need to worry as most first-time house buyers experience this feeling. As a result, it’s advisable to get in touch with proficient realtors as they assist house buyers throughout the entire house hunting process.
Remember that competing against other potential house buyers can be a daunting task, especially if it’s your first time. Read on to find essential tips to consider when making a house offer.
Listed below are the essential steps to follow to get your dream house without overpaying.
What to do Before Making an Offer on a house
You all know how thrilling moving a house can be, but before the mood carries you, please consider choosing a realtor to work with.
Picking a Real Estate Agent
Most house buyers would love to save a lot of cash as they look for their next home, and that’s why they find it worth going alone in the process instead of incurring real estate agent’s fees. However, the truth is that real estate agents have substantial experience regarding all home buying aspects. With this offering, why would you then opt to go it alone, and you have a solution by your side?
Once you find a real estate agent who helps you get the desired house, the next step to think of is the actual process of making an offer. Here are a couple of things to do once you settle on a specific home:
- Strategise – you must determine the amount you are willing to offer sellers before approaching them. Also, decide on the earnest money to deposit and projected possibilities.
- Making an offer – in most cases, you will make an offer through a letter drafted by you and your realtor.
- Negotiate – upon receiving your offer, the seller can accept, reject or request changes from it. Should they make a counteroffer, the agent will act as the negotiator between the two parties.
Now, let’s break down the process into major steps.
First Step: Identify the Amount to Offer for the house
When it comes to making a home offer, the first step is to identify the money you are willing to pay for its acquisition. As a general rule, the offer must be within your budget, and you should avoid giving a random offer. Consider giving the best possible offer without insulting the seller through a lowball offer. A couple of factors to consider before picking the final price include:
Evaluate the amount of time the house has been listed on the market. Usually, the house might have been in the market for three to four months, necessitating the seller to sell it quickly. Based on the present market, it’s suggested to offer a low price if buying a property that has been in the market for a prolonged period.
Compare the home in the surroundings which are up for sale. Is the property’s asking price higher than other properties on the market with the same features? Well, this is another feature you need to assess before offering little money.
Will the property require repairs and renovations? If so, consider the repair expenses as you finalise the total budget. As you prepare your offer, you may also ask the seller to undertake the essential repairs and maintenances.
The other thing to consider is home competition. Think about your dream home’s competition before determining the amount to offer. While bidding wars seem scary, you and your real estate agent will have an edge if you analyse how much other prospective buyers are willing to offer for the property. You can even make a backup offer if the seller has already accepted the home’s offer.
With their exceptional experience in the real estate market, real estate agents are valuable when it comes to assessing the housing cost and current market. In order to assist you in evaluating how the property you wish to buy compares to the others in the market, the realtor will perform a comparative market analysis, and this lets you make a competitive offer. It would help if you inquired about the latest sales, which might not have succeeded to the final stage, to help you identify the seller’s market.
If you are preapproved for a high mortgage amount, please don’t allow it to dictate the amount to offer. Even when your lender says you are eligible for an incredibly high amount, ensure you can comfortably live within your monthly mortgage payment. What’s more, avoid offering the whole preapproval amount although you can easily afford it. If you do so, you will hardly negotiate or leave funds for potential repairs and upgrades.
In the end, you should always engage a real estate agent if you don’t recognise the amount to offer. The agents may not tell you about the amount to offer, but they will give you essential info about what an ideal offer looks like.
Second Step: Determine the Contingencies
Merely put, contingencies are clauses inserted into a sales contract to enable buyers to use their earnest money to retreat from a sale. The common contingencies you can encounter include appraisal, home inspection, title and financing. When buying a home for cash, you don’t necessarily have to include appraisal and financing contingency. However, lenders require these documents to ensure the home is worth the given mortgage amount.
Third Step: Identify the Earnest Money to offer
Cash is everything, and even if you don’t plan to buy a house with cash, you need to submit a reasonable deposit, which is popularly known as earnest money. Notably, this amount is different based on the markets, but it often ranges between 1% and 2% of the entire house price. Offering high earnest money makes you seem better than your competitors from the seller’s viewpoint.
At first, the seller will store the money in an escrow account, but your mortgage down payment consumes it later. Remember that producing a large amount of earnest money signals the seller that you are serious about your purchase and have a couple of assets to back up the buy.
Fourth Step: Writing an Offer Letter
Once you settle on the final offer amount, please give it to the seller. A real estate agent can help you create the letter. Still, you can write it individually, but remember to include this information:
- Your name and name of anybody else you wish to appear on the title alongside you, like your kid or spouse
- The address of the property you want to purchase
- The amount of cash you want to give for the house
- All concessions you want from the seller, like repair costs
- It would be best if you met all the required house contingencies for the house sale to be successful, like an inspection
- The items you need to include in the sale, such as lighting fittings, appliances and window treatments
- The date you plan to close on your loan.
- Your mortgage preapproval letter to let the seller recognise you can fund the house buy.
- The date you plan to move into your new home.
- The deadline for responding to your offer.
One thing you should never forget is that sellers want certainty, meaning an offer with little contingences incorporates high acceptance chances. Together with your realtor, you have to finalise the letter and then provide it to the seller or the seller’s agent. Afterwards, wait for a response.
Fifth Step: Negotiate the Price and Selling Terms
As said earlier, a seller can accept, reject or make a counteroffer after getting your offer.
Seller Accepts the Offer on the house
If the seller accepts your offer, congratulations. From here, give the earnest money check and sign the sales contract. You are now more than ready to use a mortgage lender and start planning for appraisal visits and home inspections.
Seller Makes a Counter Offer
Should the seller give you a counteroffer, you have to determine what to do next. Your realtor can get in touch with the seller or their real estate agent to know what the seller desires to get from the house sale. This way, it will be easy to negotiate on the price and terms. Usually, these negotiations are casual as they happen between the parties and their agents. All in all, they will eventually form the foundation of the sale contract. Here are the tips you need to consider:
- Negotiate More than Just Your Home’s Purchase Price
- You might be ready to trade repair or modification requests for a low buying price. Work hand in hand with the realtor and seller to determine whether you can agree on the home’s final cost.
- Find the Seller’s Pain Points
- Do the sellers want to close the deal fast, or are they pushing out as far as possible as they wait for a lucrative offer? Well, if you are flexible, it would be helpful for you to solve a problem and ensure your offer is as attractive as possible to the seller.
- Write a Home Offer Letter
- Based on your situation, the real estate agent will determine whether writing this offer is worth it. In this letter, indicate your reasons for wanting to purchase the home. Going this extra mile may persuade the seller to sell the house to you if you match other sellers’ offers.
How to Negotiate for the Best Offer on a house
Once you find yourself in a house negotiation procedure, keep the following tips in mind:
- Make sure your budget is private – if you reveal the maximum amount you plan to spend, it may prompt the realtor to inspire the seller to hold out for additional money.
- Wait to get the house survey – have a survey done and negotiate for the price if you find out there are structural issues with the house, making it less valuable than what the owner asks for.
- Play it cool – even if you sincerely love the house, you should avoid showing extreme interest as this makes the seller think you are more than willing to pay the asking price to move in.
- Take time to think about your options – your real estate agent might push you to seal the deal. However, remember this is a major decision, which you have to think about it deeply before making the ultimate buying decision.
- Avoid being overly influenced by ‘sweeteners’ – in some cases, sellers may include fittings to increase the price. Indeed, the value of these fixtures will hardly be sufficient to warrant the additional price to spend on the property.
Even if you fail to secure your desired house, you shouldn’t be excessively dismayed. House buying is a continuous process, and another property will be available in the market sooner or later.
The Seller Rejects the Offer on their house
In any situation, things can go south. For example, the seller is perhaps not ready to sell, or you offered a meagre offer. While you may feel dissatisfied due to an offer rejection, keep in mind that a house you may buy today can look like a shackle a few years after buying it. You should consider the rejection as a learning experience and return to detailed house hunting.
Overview of Sealed Property Bids
When a couple of prospective property buyers provide offers, the seller may request them to give a sealed bid within a specific period. While this process is tiring, it’s worth noting that it isn’t legally binding, meaning any party is free to withdrawal at any time provided contracts are not signed and exchanged.
How to Make a Sealed Bid
Determining the price to offer in a sealed bid is a tall order because you don’t want to lose out due to a low offer, and you don’t want to overpay. However, you will stand to benefit if you offer a realistic property value. On the other hand, giving a high offer than expected means you can lose out on your expenditure if you decide to sell the house in the future.
Another risk is that your mortgage lender may find out that the property is worth less than what you have given once they undertake their valuation. In this case, you have to chip in for the additional funds or withdraw from the entire purchase altogether.
Regarding the amount to offer to the house seller, the National Association of Estate Agents (NAEA) commends people to avoid rounding offers to evade making the same bid as others. For instance, it would be recommendable to bid £150,575 instead of £150,000. Additionally, it’s a good idea to submit your sealed bid in person to make sure it definitely gets to the right hands.
The Best and Final Offer
Whenever several house buyers make offers, some sellers may ask them to submit their ‘best and final’ offer. In general, this offer is similar to the sealed bids, only that you don’t have to submit it via an envelope. At first, you can submit your best and final offer via phone, but it would help if you submit it via writing either hand-written letters or emails. This way, you can clearly outline the offer details.
Frequently Asked Questions About Making an Offer on a House
How Much Should One make an Offer on a House?
When submitting the first offer, most people submit 5% – 10% below the asking price since most sellers value their properties above the current market valuation to create a negotiation room. Whatever the case, you should avoid providing an extremely low or high opening price. The seller will not consider your bid when you give a lowball offer. On the other hand, giving a high price means you miss out on the chance of getting the house for a low price.
You should only offer more than the asking price if you are sure the seller has received more than that. Also, if you are able and willing to pay a high price because the house entices you, you can do so. Assess the maximum amount you are ready to pay and ensure you don’t bid more than you can comfortably afford.
How Much Under Asking Price Should One Give?
According to Clear Score research, some sellers can accept a house offer that’s 5% lower than the asking price as long as the buyer is not part of the property chain. A group of sellers would take a lower offer than the asking price, meaning buyers have an advantage provided they argue their case correctly.
Although you can give an offer that’s lower than the asking price, providing a low and unrealistic offer makes your offer declined right away. Most houses in the market worth over £500,000 accepts a price cut of 5% if the buyer is paying cash or through a mortgage.
In the end, you have to give valid reasons why you are buying the property at a low price. Assess whether some repairs and maintenances need to be accomplished or if there are issues encountered during the repair works. With this information, you can calculate the repair expenses and deduct them from the asking price.
Can One Withdraw or Change the Offer?
Yes. You can walk away or modify the submitted offer, provided contracts are not exchanged. If you perform a house survey and find several issues, you can ask the seller to have them fixed or sell the property at a reduced price, but there are under no legal requirements to do either.
Ideally, reduce your offer shortly before contract signing and exchange, which is widely regarded as gazundering. While this is legal, it can lead to a tricky setting for the seller and risk ruining the entire sale.
Once you exchange sale contracts with the seller, the law requires you to pay the cash that’s settled in the agreement. So, if you withdraw from the sale at this point, you might lose the deposited amount. Worst of all, the seller may decide to sue you.
What is Thought as a Lowball Offer?
Currently, there is no reliable formula for calculating lowball offers. According to the experts, a lowball offer is anything that’s at least 15% – 20% lower than the asking price. For example, offering £430,000 for a property valued at £500,000 is a lowball offer. But there are situations where sellers overprice their houses. Here, you can back up your offer with the current market price of the neighbouring properties comprising similar features.
Should I Give More than the Asking Price?
In the present competitive market, it’s common for buyers to offer a higher price than the asking price to beat the competition. However, you should never overstretch your budget.
The Final Say
It would be best if you did not allow an avoidable mistake to prevent you from buying your dream property. So, consider making a house offer immediately. But you should have a budget, research the market, and gather all the essential info required to submit a winning offer. Above all, ensure you are preapproved for a mortgage. Providing an offer that contains proof you can afford a house will undeniably entice the sellers.