Real talk: buying a house can be intimidating. So we created the first-time homebuyer series to take the mystery and anxiety out of the house-hunting process. Dive into our complete guide which covers every step of the process: why you should buy a house, how to get pre-approved for a loan, how to find an agent, how to search for a home, how to make an offer (and negotiate!), how an inspection works and how to close once you find the dream home. Don’t worry we spell it all out for you so that if this is your first time (or third) you’ll have all of the information you need for a successful purchase right at your fingertips. Read the entire series here.
So house hunting paid off and you found the home of your dreams! Once you’ve decided which house is the right one for you, it’s time for you and your agent to make an offer on the house. It seems like a pretty straightforward step in the home-buying process and it can be! But you never know what could happen. It’s easy to fall in love with a house when you’re walking through it and start to picture yourself living there. But remember, it’s not yours until your agent hands you the keys!
A lot can happen during the offer process. This guide will walk you through:
If you’d like to jump to a certain section of the guide, just click the links above.
Let’s get into it!
Insight from Real Homebuyers
Brian and Taylor Decker
This young couple recently worked with a real estate agent to buy their first home after years of apartment living.
Nick and Anna Lucs
These first-time homebuyers worked with their agent to trade downtown apartment living for a charming older home.
The Home Offer Process
Once you find the right home, it’s time to make an offer. This is the basic offer process that we’ll walk through:
- Work with your agent to make an offer
- The seller can:
- Accept your offer
- Negotiate the terms of your offer
- Decline your offer
- If the offer is accepted, you can proceed to an inspection
- If your offer is declined, you can put in a new offer or start house hunting again.
Work with your agent on the offer
Your agent will be your best asset during this process. They walked through the house with you and know everything about it. They also have the market knowledge and experience to tell you if what the seller is asking for is reasonable and if you should offer asking price or go lower or higher. Your agent will also be the one to recommend you ask for things like coverage of closing costs, a specific move-in date or repairs on known issues.
First-time homebuyers Nick and Anna Lucs remember how it felt once they found the house they wanted to buy.
“Our agent helped us with the offer because we knew we wanted the house but then we didn’t know what to do. We were like ‘Now what?’” said Nick. “She said she’d get it drawn up and she told us to ask for the seller to cover closing costs. She walked through the house with us so she saw what we saw. She suggested what else we should ask for; she basically held our hand.”
Listen to your agent’s feedback but don’t be afraid to ask questions. Your agent should be happy to explain the process.
You’ll have to be ready to move fast. Buying a house can be a competitive experience, especially with so many young buyers in the market searching for their first homes.
“Within an hour we had decided that was our house so we put an offer in on it,” said Anna. “The current owners were out of town so we had to wait for them to get back but they got back to us right when they got home and accepted our offer. Someone else was going to put an offer in but they didn’t get it in time so they went with ours.”
The Purchase Agreement
Once you’ve talked to your agent, they will draw up a purchase agreement. A purchase agreement is a contract outlining the price and terms for buying a house. This will include terms that we mentioned earlier like how long you’ll have to inspect the house, if a home warranty is included, a specified move-in date and coverage of closing costs. The purchase agreement will also contain contingencies.
Contingencies are clauses that allow you to back out of the purchase agreement if certain conditions are not met. Think of these as your “emergency exits” that provide you with legitimate reasons to walk away from the purchase.
These are some common contingencies your agent may include in the purchase agreement:
- Financing approval
- Pest control
- Clear title
Financing approval- This is one of the most common contingencies to have written into your purchase agreement. This states that the purchase of the home depends on you being approved for a home loan by your lender. You want this contingency even if you have a pre-approval letter. You have to cover your bases just in case something goes wrong because a pre-approval letter is not a guarantee of a loan.
Inspection- The seller’s disclosure will have the known issues listed but you never know what else may be discovered during the inspection. This clause protects you in case a big issue- like a cracking foundation or leaky roof- is discovered. If the sellers are unable or unwilling to fix it, this clause allows you the ability to walk away from the negotiations.
Pest control- This isn’t a blanket term for all pests you might find in a house. The pest inspection is mostly focused on finding and eradicating any wood-destroying insects the might be in the home. This is something that would be discovered during a separate inspection by a pest company. If you find the house has a pest problem, you can include treatment by the seller as a necessary fix in your purchase agreement.
Appraisal- The appraisal impacts your financing so it’s definitely a contingency your agent will include in the purchase agreement. Lenders use the appraisal to make sure the value of the home matches the home loan amount the buyer is agreeing to take out. If the appraisal places the home’s value below what was previously thought, you would potentially be able to re-negotiate the purchase price of the house.
Clear title- A title legally designates who owns the house and who has owned it previously. It also includes any liens or judgments against the house. This contingency does require the seller to clear any issues with the title before you close on the house. It gives you the ability to walk away from the purchase if it’s possible someone else (like a creditor) might contest ownership of the house.
Other contingencies include the sale of your current home and early occupancy, but it’s unlikely you’ll need these as a first-time buyer.
Another term outlined in your purchase agreement will be earnest money. Earnest money is a good-faith gesture that shows you are serious about your offer.
Your agent will advise you on how much earnest money you should include with your offer. It can be anywhere from $0 to full price- there is no hard rule on how much earnest money you have to offer. However, it’s a good idea to offer at least 1-3% of the purchase price. Earnest money sweetens the deal and shows the seller you’re serious about buying their house. You don’t technically have to give earnest money with your offer, but you may find your offer declined if you don’t.
Once your offer is accepted, your agent will give your earnest money to the seller’s agent via check or electronically. Your earnest money will be cashed as soon as your offer is accepted so the sooner you turn it in, the better. The money is held in a non-interest bearing trust account and will be credited back to you at closing- so think of it as an initial deposit on the house.
What happens to your earnest money if you remove your offer?
It’s important to know that you may not get your earnest money back if you decide not to go through with the purchase of a house. While your purchase agreement lays out specific contingencies, it is possible for the seller to keep your earnest money if the deal falls through. The seller may consider it compensation for time lost negotiating with buyers who didn’t come through. This won’t always happen, but it is possible. Your agent can answer questions about earnest money and give you advice if this does happen.
The Seller Accepts, Negotiates or Declines
Once your agent presents your offer to the seller, one of three scenarios will happen: the seller will accept your offer outright, the seller will want to negotiate the terms of your offer or the seller will decline your offer.
Let’s walk through these scenarios:
The Seller Accepts Your Offer
Congrats, the seller accepted your offer! This will happen when your offer is right on the money. Anna Lucs, one of our first-time buyers, remembers how straightforward their offer process was.
“We offered asking price because we felt like it was reasonable,” she said. “We asked if they would cover the closing costs which ended up being about $2,750. They agreed to cover that and it was done.”
Nick and Anna were lucky enough to find an older house that had been well taken care of so they didn’t need to ask for much in their purchase agreement. “They had taken care of all the big-ticket items. They had replaced the furnace, they replaced the air conditioner, they had replaced the roof, they had taken care of all the major things,” said Anna. “This was a home that the previous owner had lived in for 25 years and they had just lovingly taken care of it.”
Once the seller accepts your offer, you’ll have more paperwork to sign. But a good agent will take the time to explain everything you’re signing.
“After we made the offer and it was accepted, we got a bunch of emails with forms,” said Anna. “It was all clearly defined, what we needed to read, where we needed to sign and we used a DocuSign program she sent us so we could sign electronically since we were on the road at the time.”
Once all the paperwork is signed, your earnest money check will be deposited and you’ll work with your agent to schedule an inspection. We’ll take a deep dive into the inspection process in the next part of the first-time homebuyer series.
The Seller Wants to Negotiate Your Offer
It’s common for a seller to want to negotiate your offer. They may think you came in too low on your offer price or want to negotiate the contingencies in the purchase agreement. Your agent will do the negotiating on your behalf with the seller’s agent (or the seller if they aren’t using an agent).
Negotiations can be stressful because you’re already emotionally invested in the house and might be starting to think of it as yours already. Don’t get too far ahead of yourself!
Remember our first-time homebuyers Brian and Taylor Decker? They shared their experience in the last article on house hunting and how tense the offer process was for them.
“We found a home and put in an offer and then had two or three days of negotiations. It was very tense,” said Taylor Decker. “They finally accepted our offer but then the inspection found some things that needed to be changed. Negotiations re-opened and we ended up withdrawing our offer. We were pretty bummed out.”
Negotiations can happen during the offer process and continue through the inspection. Your agent is your advocate during all of this and should do their best to make sure your interests are being represented. You should stay open-minded and flexible but hold firm on your budget and must-have contingencies.
“We were really thankful for our agent because this was really stressful and we weren’t necessarily prepared for some of the things we were going to have to face,” said Taylor. “We ended up removing our offer from the first house we fell in love with and that was a very stressful process for us. After that, I was a little gun shy. I didn’t know if I wanted to look at any more houses, I just felt done with the process. But our agent was really good.”
Negotiations can be stressful but an experienced agent will handle them like a pro and keep you updated on everything going on. “Communication through the offer process is key. Our agent was calling me every time she got something new or when she had an idea,” said Taylor. “It was constant communication so we’re always kept in the loop.”
If you and your agent can come to terms with the sellers, they’ll accept the new offer and you can sign paperwork and move on to the inspection. If your agent and the sellers can’t reach a reasonable agreement, you can withdraw your offer and keep house hunting.
Brian and Taylor’s experience is a worst-case scenario of negotiations during the offer process. Most of the time your agent and the seller’s agent will come to terms fairly quickly. And if negotiations over the offer do break down and you end up withdrawing your offer, don’t give up!
“The same day we withdrew our offer on the first house, we found the house we’re living in today!” said Taylor.
We’ll take a deeper look at the negotiation process later on in the first-time homebuyer series.
The Seller Rejects Your Offer
There are a number of reasons a seller would reject your offer. Even if you and your agent think you’ve made a reasonable offer, a seller is well within their rights to turn you down after negotiations.
These are some commons reasons your offer could be rejected:
- The offer price is too low
- There are competing offers
- You asked for too many concessions
- You didn’t offer enough earnest money
- They’re wary of your financing
Your offer price is too low- You’ll work with your agent to decide on an offer price. Your agent should have the market knowledge and expertise to tell you if the seller’s asking price is reasonable or if you should offer a different amount. If you low-ball the seller and offer too little, especially in a competitive market, the seller may reject your offer outright and move on to the next offer. Work with your agent to balance market value with your budget.
There are competing offers- In a competitive market, it’s likely you’ll be up against other buyers offering on the same house. Usually, a seller will accept offers over a certain period of time and then review everyone’s at once and reach out to the buyer with the best offer. If you don’t get your offer to the seller in time or your offer isn’t as competitive as someone else’s, you could be passed over.
You asked for too many concessions- Contingencies are a concession for the seller- an adjustment they must make in order for you to buy the house. While some contingencies- inspection, appraisal, financing- are perfectly normal, it’s possible to ask for too much. Contingencies can affect the sale of the house or eat into a seller’s profits so if you ask for too many above and beyond the norm, the seller may just say ‘forget it.’
You didn’t offer enough (or any) earnest money- Earnest money really sweetens the deal when it comes to competing offers. If you didn’t include any with your offer, or didn’t offer enough, the seller may think you’re not actually serious about buying the house. If you’re in a competitive market, earnest money can give you the edge you need to beat out other buyers. An offer without earnest money doesn’t look good to a seller and they can reject it.
They’re not confident in your financing- At this stage in the home buying process, you should already have a letter of pre-approval from your lender that shows how much you might be able to afford in a home loan and what kind of loan you’d use. However, it’s still possible for a seller to be wary about the financing you’ll use. Their agent might be coaching them to only look at buyers with specific loan types or down payment amounts to make the purchase process as easy as possible.
What do you do if your offer is rejected?
Typically there will be some kind of counteroffer or negotiation process before a seller rejects your offer. However, you may not come to terms. If your needs and the seller’s needs just don’t match or if you’re dealing with an unreasonable seller, your offer may be rejected.
It can feel devastating when this happens. Despite how often your agent will warn you not to fall in love with the house until you get the keys, it’s hard not to! There are a few things you can do if your offer on a house is rejected:
Come back with a stronger offer. If you really want that house and have the ability to make a stronger offer, you should talk to your agent about making a new offer. This might mean raising your offer price, dropping off a few contingencies or offering more earnest money. If you do decide to come back with a new offer, make sure you’re still staying within your budget. There’s no reason to go way over your budget.
Walk away, literally and emotionally. Remember how upset Brian and Taylor Decker were about having to withdraw their offer on a house? Taylor said she felt “burned out” and didn’t want to look at any more houses after getting so emotionally invested in the first one. But they ended up finding their dream home the very same day. You have to know when to walk away and start fresh and your agent will be your best support.
Use that experience to your advantage. It’s easy to get hung up on the house you thought was “the one” and think you’ll never find another one. But don’t stop searching just because a seller didn’t accept your offer. Use that experience to your advantage the next time. You will find another house you love enough to make an offer on and this time you’ll know what to expect and what to sweeten your offer with to make it appealing to the seller.
Making an offer on a house can be a very straightforward process, like Nick and Anna’s, or it can be fraught with counteroffers, negotiations and a lot of emotion, like Brian and Taylor’s. No matter how much your agent may caution you, it’s hard not to fall in love with the houses you see.
There’s a lot that goes on behind the scenes during the offer process that you might not see as the buyer. Your agent will be working hard to make sure your offer is competitive for the market, in constant communication with the seller’s agent and you and working hard to make sure you are calm and optimistic.
Both first-time buyer couples credit their agents with making a complicated process simple and straightforward for them. “Communication through the offer process is key. Our agent was calling me every time she got something new or when she had an idea,” said Taylor. “It was constant communication so we were always kept in the loop.”
Once you find a house you love, make an offer and have that offer accepted, it’s time for an inspection!
Real talk: buying a house can be intimidating. So we created the first-time homebuyer series to take the mystery and anxiety out of the house-hunting process. Dive into our complete guide which covers every step of the process so you’ll have all of the information you need for a successful purchase right at your fingertips.