Buying Your First Home? Here's How to Make a Winning Offer

woman holding house keys

Congratulations! You're finally ready to jump into the world of homeownership. Buying your own place can make a discernable difference in your quality of life, financial stability, and overall sense of wellbeing. But obsessing about more closet space or living room color schemes will not get you to the settlement table. You need to be well-positioned to make an offer that the seller will accept.

The good news is that making an offer on a house these days usually doesn't require complicated negotiations going back and forth—if only because this is most assuredly a seller's market. Record low housing inventory means that every buyer is competing with many other potential buyers to win sellers over. Of course, that's also the bad news, because there are not many bargains out there and house prices continue to rise with demand, says Amanda Albrecht of Michele Morris Realty in Plainfield, IL.

For that reason, timing is everything, and a savvy buyer must be prepared to act swiftly (more on that later). Read up on these important tips so that when you find your dream listing you can make an offer that the seller won't be able to refuse. 

Come with Receipts

It's always advised to work with a realtor or real estate agent but the most important thing a potential first-time homebuyer can do before even contacting a professional is to get preapproved for a mortgage, Albrecht says. You want to know your price range before you start looking.

However, Albrecht says the traditional debt to income ratio banks rely on for pre-approval screening is probably not the most accurate guide for sensible budgeting in this day and age.

"Oftentimes what the bank approves you for is about 49 percent of your income which is quite high to spend toward your housing," she says. "When you're renting you're usually paying about a third of your monthly income. So before you settle on a number, I would make sure you are really comfortable with what that mortgage payment will look like."

If you find that the mortgage preapproval sounds too high, adjust your price range accordingly before approaching a realtor. Remember, too, that real estate taxes will have to be factored into the home cost.

Get Plugged In

It’s key to choose an agent who has been working in the field for several years and has a good reputation. Putting in offers on houses is a nuanced, highly skilled process. Even if there is not a lot of negotiation, there are still many factors to consider and many junctures where things can go off track. Having an experienced realtor or real estate agent on your side can be the difference between getting a yes or no.  

Not only will a seasoned professional understand the particulars of the market, the neighborhood and the psychology of sales, but they will also come to the table with a network of industry connections. This matters that much more in a competitive landscape like this one. You want someone who can get you an appointment to see the listing as soon as possible, who can get the seller's agent on the phone when needed to answer any questions, and who has the clout and trust to get the deal done. An agent who has been in the field for some time will also have good referrals to reputable vendors such as inspectors and contractors.

Be Decisive

Given the conditions of the current market, and the lack of available homes for sale, buyers need to move quickly once they see something they like, Albrecht says. For example, a recent listing she posted at seven a.m. had 10 showings booked in the first hour. By the end of the day, 30 people had seen it, with eight making offers.

This kind of pressure to act can be a challenge for anyone, let alone a first-time buyer—it's not easy to make big decisions on the fly, especially when it might be the biggest purchase you've ever made. Unfortunately, Albrecht has seen too many clients learn their lesson the hard way, losing out on a desirable listing by hesitating to act. While there may be some exceptions, in general, you can assume that what you see listed on the internet today may very well not be on the market tomorrow.

"We've seen people whose parents have told them ‘no way do you have to make an offer that fast' because the market really wasn't that way when they moved forty years ago," she says. "But then our client might lose out on three or four homes. By then they are frantic, and they are ready to be serious."

Name Your Best Price

couple at table shaking hands with person

For many people, exactly how to bid on the house, the cold hard numbers aspect of the offer can be uncomfortable. Remember that your agent is there to guide you. In some ways, the current conditions should put you at ease, because there is not much room for haggling with sellers these days. In previous times you might have been able to start a bit lower than the asking price, but that is not the case right now when the rule of thumb is to give the seller what they want or more.

If you know that the house will be going into a bidding war, or auction, with multiple buyers vying for it, you will have to give a final offer by a deadline. In this case, there are no counter offers—just the seller choosing the buyer with the most attractive offer. To give yourself an edge you might consider including an escalation clause which essentially tells the seller you will pay x amount above the highest bid.

Paying in cash can be another way to get a seller's attention. That lets your seller know your deal is not contingent on bank financing or loans or appraisals—you can close immediately, and the deal will be completed as soon as possible. Given that the most common reason real estate deals fall through is financing issues, a cash offer simplifies matters and can even seem more appealing than a higher offer to some sellers.

A final way to use money to up the ante is to consider making a bigger earnest money deposit. The earnest deposit is the amount of money that accompanies your offer. Typically, it's about five percent but the more you put down, the more serious you appear to be about your offer. Some people even offer to make it nonrefundable.

Sweeten the Deal

You don't always have to use money to lure the seller. One way is by being flexible with your closing date. Your seller will likely be tied to their next mortgage closing date. If you're moving out of a rental property or a family member's house, you might not have to move on one specific day. The easier you can make it on them, giving them the timeframe they might need, the better it is for your chances of winning the house.

If the proposed closing date puts you in between a lease and your signed mortgage, you might need to take advantage of self-storage for your personal belongings. A flexible month-to-month contract is ideal for stowing away items until you gain ownership of your new house and can move in.

Another seller-friendly approach is to waive all contingencies, or make a "clean offer." Contingencies are stipulations in the offer for closing the deal. These can include very standard items such as home inspection and appraisal or less standard items such as asking the homeowner to include furniture. In the past, buyers would expect the seller to address needed repairs recommended by the home inspector. While asking less of the homeowner is wise in this market, skipping over the inspection can be much riskier for the buyer.

One way to avoid this is to keep the inspection but instead of asking the homeowner to cover repairs to ask for a one-year warranty which will cover anything that happens in the first year. This can be an inexpensive way to keep a cleaner offer.

Another thing that was standard in the past that is simply not done in today's real estate market: asking a seller to pay for closing costs. Don't do it, Albrecht says. Make sure to factor in closing costs to your own budget.

Don't Get Emotional and Stick to the Basics

Some real estate websites suggest writing a letter to the seller to ensure your offer is accepted but Albrecht says that particular tactic is no longer as effective as it used to be.

"It's supposed to pull on the heartstrings but actually we have seen recently that it is starting to have an opposite effect. Our seller with the eight offers didn't want to read the letters. It was a business transaction—he didn't want an emotional sale. He wanted to pick the best offer."

What's more important is that your offer contains all of the necessary paperwork, with all of the necessary documentation and signatures.

Keep Your Money in the Bank

No matter how excited you may be about moving into your dream house and its color scheme, don't start shopping for furniture, appliances, or even power tools just yet. In fact, if you're making an offer on a home, now is not the time to go making any big purchases on your credit cards. Don't charge anything that will affect your ability to get the loan completed.

Get Ready to Move!

Once your offer has been accepted, start preparing for the big day. If you've held your belongings in storage, now is the time to ready them for moving to your new home. Or if some of your belongings don't fit in the new home but you're not ready to let go of them, consider investing in a unit to store them for the time being. We can also assist you with packing supplies. Pro tip: you can never have too many!

For as rattling as the home buying, packing, and moving process can be, try to keep calm and remember that this is all a means to an end. You're making a long-term investment in your future and no matter where you end up living, it will be yours to love, cherish, and decorate.

About the author

Elisa Ludwig

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