When it comes to expressing interest in a home, buyers make the first move with an offer letter. This generally includes the price they want to pay, the potential closing date, and a time frame for the seller to respond. Sellers can accept the offer as is, reject it, or respond with a counteroffer.
How does the housing market affect an offer?
As with most business transactions, it comes down to supply and demand.
- Seller’s market: The housing inventory is low and many buyers compete for only a few listings. In these situations, houses can sometimes sell for more than the asking price, as buyers submit more generous offers in hopes to have theirs accepted.
- Buyer’s market: The housing inventory is greater compared to the demand. This situation can give homebuyers a little more flexibility in terms of offer price and negotiating.
In general, areas with healthy economies and more jobs tend to be seller’s markets, while those with struggling economies tend to be buyer’s markets. The real estate market also has a seasonal pattern, with more buyers in the summer, and with fewer buyers in the winter.
Depending on the region, area, or neighborhood, housing markets can shift quickly. Partnering with an experienced realtor can help you understand how competitive the local housing market is and what to expect when finalizing an offer.
Buyer: How much should you offer on a house?
Your real estate agent can provide insight into the right amount to offer based on comparable sales, also referred to as “comps.” Agents look at recent sales of similar homes in the area to help suggest a pricing strategy that is fair and realistic in the current market. You can also do this yourself by reviewing public records and home search websites.
Other things that can affect the amount you offer include: how long it’s been on the market, the condition of the house and property, and if the seller is motivated.
If you have multiple favorites and would be happy with any of them, making an offer on more than one home could be an option. Be mindful that when you make an offer, you generally need to include an earnest money deposit to show that you're serious. Once a seller accepts your offer, the earnest money is deposited into an escrow account to be added toward your down payment.
Seller: prepare for the offer
When it comes to selling a home, preparation is key. With clear goals and the right homework, you’ll be better able to negotiate on your terms and be less likely to accept a deal that doesn’t fit your needs.
Set goals and expectations
Know what’s most important to you. Are you looking for the highest possible price or possibly timing your move with a new job? A clear goal can help shape the terms you push for and the concessions you offer.
Establish what you're willing to accept
Set the lowest price you’re willing to accept, then stick to that amount. Doing so may help keep your emotions out of the transaction and walk away if you don’t get exactly what you want. However, be sure to consider the fair market value. You may need to be flexible in certain situations, for example in a buyer’s market, if you need to make a quick sale, or if many homes similar to yours are also for sale.
Get the home inspected1
Find what could possibly be wrong with the home so you’re aware of any potential issues a buyer might discover before the offer is made and negotiations begin. This helps you address any major concerns ahead of time, or disclose them and adjust the listing price.
Negotiating a house offer: tips and strategies1
Sellers want the highest price with the least number of concessions, while buyers are looking to get the most and spend the least. Consider these tips and strategies as you negotiate an offer, on either side of the transaction.
Counter with the original asking price
If you’re confident the house is priced fairly, consider countering a low offer with the original asking price. Interested parties will likely come back with a higher offer.
Counter slightly below the asking price
If you're concerned with turning away serious buyers, but still believe the house is priced fairly, consider countering slightly below the asking price, for example by $1,000. Interested parties will likely counter with another offer or accept.
Counter somewhere between
If you’re flexible on the price, you can counter somewhere between the original price and the offer, which generally leads to a back-and-forth until both parties agree to a final price.
Reject and request a new offer
While you risk losing their interest, consider rejecting a low offer outright. As a result, sellers aren’t locked into a legally binding negotiation and can accept a higher offer if it comes along. Serious buyers, knowing someone can make a better offer at any moment, might come back with a more competitive offer.
Wait to accept offers until after an open house
For this strategy, sellers schedule an open house shortly after making the listing available and refuse any offers until after the event. This can create potential competition and may urge buyers to make higher offers. It may even result in multiple offers. You can then ask top bidders for their highest and best offer.
Put an expiration date on the counteroffer
Include a short deadline to accept the counteroffer—generally 1 to 2 days—this encourages the buyer to make a decision, allowing the seller to either accept the offer and put the house under contract, or not. The longer a negotiation drags on, the longer the home is effectively off the market for other buyers to make an offer.
Include closing costs
Sometimes buyers are short with up-front cash needed for closing costs but can afford to increase the loan amount. Sellers can offer to cover closing costs, sometimes at an increased purchase price the buyer can make up in their mortgage. The catch is the higher price must be supported by the home appraisal and also approved by the buyer’s lender.
Include other concessions
Instead of conceding on the asking price, agree to other concessions, such as a move-out date that favors the buyer. This shows the seller is firm on the home value, but still flexible to negotiate.
Include a home warranty
Acknowledge the age of certain home features, such as the roof or furnace. If anything becomes an issue during negotiations, the seller should be ready to offer a home warranty to cover those items for a limited time. The cost is generally less than a potential reduction in price.