Tips for Making a Home Purchase Offer

Offering to buy a house is more than just saying "I'll take it." Your purchase offer might (depending on the custom in your state) take the form of a nearly complete contract, showing not only the price you're offering, but other important terms such as closing date and various contingencies you're requesting as a condition to finalizing the deal. And you may be competing with other prospective buyers, who've fallen in love with the same house.

Here are some commonly asked questions about what should or shouldn't go into a purchase offer.

• How do I make my purchase offer stronger than that of other bidders?
• Can we add a “neighborhood review” contingency to our purchase offer?
• Should I factor online estimates or Zestimates into my offer price?
• Can a house seller refuse a full-price offer?

How do I make my purchase offer stronger than that of other bidders?

My husband and I are trying to buy our first house, and the local market has gone nuts. Sellers are receiving multiple offers, buyers are bidding far over list price, and so on. We’ve already been outbid on three houses. Short of doubling the list price, what can we do to make sure the sellers choose our offer?

Answer

A bit of luck will obviously help, but here are potential strategies for competing in a hot market:

• Make a realistic bid. This can feel like a moving target, but sometimes it takes a few offers before home buyers, and even their real estate agents, start to get a true sense of just how far over the list price the average buyer will go. Of course, that won’t help if another buyer loses perspective and makes a crazy-high offer. But at least you’ll be either in the upper tier of bidders or you’ll avoid wasting your time making an offer on a house that, despite the list price, you can’t actually afford. Don’t look only at list prices or recent sales—have your real estate agent check the MLS for the prices accepted for pending offers that haven’t yet closed.
• Borrow from friends so you can pay all cash. Sellers love all-cash offers, because they don’t come with a financing contingency, meaning there’s no chance that the deal will fall through because the buyer couldn’t get final approval on a bank loan. You don’t have to hit friends up for a long-term loan—just one long enough to let you close the deal, after which you’d turn around and take out a traditional bank loan. (Besides, you can protect your family and friend lenders by setting this up legally so that if you can’t pay the loan back, they can foreclose and recoup their investment—which should be no trouble, in a market as hot as you describe). See Borrowing From Family and Friends to Buy a House for more information.
• Make the largest possible down payment. This is the next best thing to paying all cash. A large down payment means one higher than the traditional 20%. The seller knows that the less you borrow from the bank or other lender, the more you are to gain approval of the loan. (With less money at stake, the lender knows it can sell the house for enough to recoup its loan).
• Get pre-approval from a lender. Actually, this is a basic requirement that you and every other buyer should have fulfilled. But the point is to be prepared to provide as much proof as possible that your financial situation is strong enough to close the deal.
• Find out what the seller’s individual needs are. That may mean offering the shortest closing period you can manage, if you discover that the seller has already bought another house and is eager to get the money out of this one; accommodating the seller if you know that he or she still needs to find a house to buy (for example by offering a rent-back or home purchase contingency); and even waiving the contingency allowing you to make the sale conditional on your satisfaction with the results of a home inspection (though this is risky; you’d want to at least get a friend in there with contracting skills to tell you what you might be getting into).
• Write a letter. This may not set your offer apart—it’s becoming an “everyone is doing it” sort of thing. But the idea is to give the seller an idea of who you are, how much you appreciate the home, and why, all other things being equal, the seller should choose you to take over their beloved nest.

One last thing to remember: When competing against other bidders, you are unlikely to get a second bite at the apple; that is, a chance to negotiate or improve your offer. Put your absolute best offer forward at the outset.

Can we add a “neighborhood review” contingency to our purchase offer?

We are buying a home in another state and selling our home in Seattle, and we notice that the standard form purchase contract doesn’t contain a “neighborhood review” contingency. When we bought our Seattle home, this contingency gave us three days to check out the surroundings and the crime rate and make sure these were acceptable before continuing with the purchase. Can we add this to our contract to buy our next home?

Answer

The so called “Neighborhood Review” clause is fairly unique to Washington state purchase contracts. As you described, it gives home buyers a three-day period in which to investigate things like the quality of local schools, how close the home is to bus lines and shopping, local noise levels, parking availability, and other environmental and safety conditions.

This clause has been good for helping Washington buyers remember to do things like knock on doors and check crime stats. But it also draws complaints from the Washington real estate industry and sellers, because it gives buyers an easy “out” if they get cold feet.

So yes, you can try adding the clause to your purchase contract if you wish. But unless your offer is the only one on the table, be ready for the seller to refuse to agree to a three-day period of such uncertainty. Strategically, you’re probably better off checking out the neighborhood in which you plan to buy BEFORE making an offer on a particular house.

Should I factor online estimates or Zestimates into my offer price?

My wife and I would like to put in an offer on a particular home, but its list price is higher than its online Zestimate. What’s more, our real estate agent says other bids are likely to come in on the place, and so we should offer even more than list. What’s going on? I’m worried our real estate agent is scamming us, to increase her commission.

Answer

You’ve raised two issues here: one regarding the value of online estimate (or “Zestimates,” when found on Zillow), and one regarding whether your agent has a conflict of interest in suggesting an offer amount.

Online estimates of home value should always be taken with a grain—or maybe a pound—of salt. They are computer generated, based on objectively determined (but sometimes inaccurate) factors gleaned from public records, such as number of rooms and square footage.

The computer can't know whether the house overlooks a botanical garden or a garbage dump, smells like the nearby pine woods or like the last owner’s cats were incontinent, or is streaming with sunlight or in the shadow of a nearby high-rise. The very reason you and your wife fell in love with this house could be overlooked in its online estimate.

Are such estimates entirely irrelevant? No, in that other buyers may be viewing them and asking the same questions. But if you’re in a multiple-bidding situation, then counting on all the other buyer lowballing their offers is not likely to get you the house.

The best way to figure out how much to offer if you aren't entirely confident in your agent's recommendation is to develop a sense of the market yourself, as described in How Much Should I Offer for a House: List Price, Higher, or Lower?.

Now, to the matter of your real estate agent’s conflict of interest. It’s true that the more you pay, the higher the agent's commission. But unless you have other questions about your agent, there’s no reason to assume he or she will act unprofessionally. Hopefully you checked the agent out carefully in advance, using the criteria described in Choosing a Real Estate Agent to Help You Buy a Home.

You could actually ask the seller’s agent directly how many offers are expected. If it’s several, listen to your agent—you’re in a bidding situation where you should be calculating how much the house is worth to you and how high you’re willing to go to beat out other offers. This house won’t be a bargain.

Can a house seller refuse a full-price offer?

We recently made a full-price offer on a house. It's a bargain, but not an unfair price. We told the seller that we're pre-approved for a loan. But they rejected our offer! Can they legally do this?

Answer

It's perfectly legal in most states for a home seller to reject a full-price offer, or indeed any offer (unless the reasons are discriminatory). The exception is that in certain states, sellers must accept a full-price, "clean" offer--one containing no contingencies, such as the sale being conditioned on the buyer receiving loan financing or approving the results of a home inspection. But it's likely you put a contingency or two into your offer.

You may never know why the seller rejected your offer; perhaps second thoughts about selling or the list price, or the seller's agent personally disliking your agent based on past negotiations. If the problem could have been fixed, the seller most likely would have counteroffered. Your best bet is to move along to the next property.

For help in crafting an offer that a home seller will happily accept, see Nolo's Essential Guide to Buying Your First Home.