Picture this: You and another person are facing each other on a stage, hands hovering over bright red buttons. You’ve both decided to make an offer on the same home, and now it just comes down to who hits the button first.
Sound stressful? We think so. Thankfully, making an offer on a new home is less Family Feud and more like a college essay. Not the easiest task to accomplish, but with careful planning, expert advice – and a little bit of luck – you can set yourself up for the best chance of success.
The first step in making a purchase offer – also called a purchase agreement or letter of intent to purchase, among other names – is knowing what to expect. While this is a complex and sometimes lengthy process, there is a general path to follow:
- Develop your offer and present it to the seller in an official document
- The seller accepts, declines, or offers a
- If the seller accepts, you move forward with the purchase
- If the seller declines, you can make a new offer or consider looking at other houses
- If the seller sends a counteroffer, you will review the document and either accept, decline, or offer a counteroffer of your own
- Once the purchase offer is accepted, it is signed by both parties and becomes a legally-binding contract
Feeling a bit calmer? Good.
How to Write a Purchase Offer Letter
There is a lot – and we mean a lot – that goes into a full offer letter. We’re going to unpack the main aspects to include, along with common sections most homebuyers opt to add, but know this list might not include everything needed for your specific situation. Make adjustments based on your own needs.
When deciding how much you’ll offer, consider not only the listing price, but also your budget, how the local market is performing (having an agent to run a comparative market analysis is incredibly helpful here!), the seller’s motivation for selling and how quickly they want to close, and the overall condition of the home.
Don’t offer the full amount you’ve been approved for by your lender, as you’ll want to have some space for negotiations down the line. However, making a lowball offer isn’t always the best bet. While most sellers understand and expect buyers to offer an amount less than asking price, there’s no clear definition of how low is too low, and when it’s a good idea to lowball an offer. Read the situation and use your best judgement. For instance, is the buyer in a rush to sell? They could be more open to a lower offer than, say, someone who just listed their home yesterday.
Next up is the earnest deposit, a good faith payment showing you’re serious about purchasing the house. This is a percentage of the overall cost (typically between 1 and 5 percent) or a set amount decided by the seller.
While the earnest deposit is a sign of your commitment and is meant to comfort the seller, these funds are not to be given directly to the seller. The money should be held in escrow by a reputable and unbiased third party, so neither you nor the seller can access the money until negotiations and the sale are complete. The contract should also include what happens to the earnest deposit if the sale falls through. If the purchase is successful, the funds are either returned to you or applied directly to your closing costs.
The down payment, similar to the earnest deposit, is paid to the lender if you are financing your purchase. Your lender will determine the amount, but typically the down payment ranges from 5 to 20 percent of the overall cost of the home. The amount you’re able to put toward a down payment can also determine the need for private mortgage insurance and your interest rate, so think about this amount carefully.
If this is between you and the lender, why include it in the offer letter to the seller? Because it shows the seller you’ve considered financing and know how you’ll pay for the home, making it less likely you’ll back out of the purchase. This will also inform the seller of how you plan to finance the home (traditional financing, VA home loan, etc.) so they can consider the risk factor.
Where there’s this much money involved, you’re going to want to make sure you safeguard yourself from having to forfeit the money should the sale not go through. These contingencies should be outlined in the purchase offer; common examples include:
- Disclosures – Sellers are required by law to disclose the true state of the property, including any safety hazards or anything that devalues the home. This contingency allows you to modify or withdraw your offer depending on what is revealed in property disclosures.
- Home Inspection – If major issues are revealed during the home inspection, you’ll want to make sure you can safely change your mind on the purchase without repercussions. You can arrange for one inspection after construction is complete, or opt for multiple inspections throughout the building process.
- Home Sale – If you’re selling your current property, this is an important to ensure you’re not paying for two homes in the end. Put simply, it’s a statement of “If my current home sells, then I’ll purchase your home.”
- Official Appraisal – Lenders strongly encourage this to make sure you’re paying a fair price for the home.
- Mortgage or Financing – If, for whatever reason, financing is not secured and you’re not approved for a home loan, this protects you from having to proceed with the purchase.
- Repairs or Replacement – If there is obvious damage to the property – in addition to what a home inspection might reveal – this contingency requires repair or replacement for the sale to go through.
- Title – This allows you to review the title of the home and ensure there are no liens or encumbrances against the property before purchasing it.
Other contingencies might be important or beneficial for your specific situation; when it doubt, it’s best to reach out to a professional, such as an agent or a lawyer. Keep in mind that presenting a seller with a lengthy list of contingencies is likely to make them hesitant to accept your offer; so include what’s necessary to safeguard yourself, but not so much the builder backs out of the offer.
Time is a limited resource, especially in the home buying process. When writing an offer letter, include a deadline by which the document must be reviewed by the seller and returned with an acceptance, denial, or counteroffer. You or the seller might also think about contingency-specific deadlines; for example, if you have a financing contingency, include a date by which financing must be obtained.
One important deadline forgotten more often than you would think is the occupancy date; clearly state when you, the buyer, are legally allowed to begin occupying the property, so there is no confusion down the line when you’ve got your entire life in boxes but nowhere to put everything.
These deadlines hold everyone accountable: If for whatever reason one party is wasting time and that results in opportunities lost, the other is protected from ramifications and the process isn’t drawn out needlessly.
While these are the heavy hitters in offer letters, there’s more information included that you’ll have to review, such as an accurate description of the property – descriptions of the landscaping, interior, and exterior – as well as any appliances or fixtures included in the sale.
There will also be the time prior to the closing of the sale, when ownership of the home is in a bit of a gray area. Be sure to outline when and how homeownership expenses will be handled, such as taxes, and if any prorated expenses will be later reimbursed to the buyer or seller.
Concessions, such as the seller or lender contributing to closing costs, are not required, but are often included in the contract. It’s best to go with professional advice here so you know what’s reasonable to ask.
You might also choose to include a personal letter explaining the reasoning behind the offer you’ve made, or gives reasons for additional consideration. While not required, a personal letter is helpful if you suspect there are multiple bids on a home.
Finally, There could also be state and local contingencies or additional requirements; make sure these are also included, and if you’re unsure of what they are, reaching out to an agent or attorney is a great idea.
What Comes Next?
Once your purchase offer is compiled, don’t just immediately hit send! Remember: Should the seller sign the document as-is, it becomes a legally binding contract. Review the document at least once – even better, have someone else look it over – and make sure you’re confident in what you’re asking. Don’t forget to review for grammar errors to make sure you’re putting your best foot forward. In some states it’s required an attorney prepare the offer letter, or at least review it; even if it’s not a requirement, it’s still a good idea to reach out to a legal professional to help with this process.
After you send the letter, the seller will review and make their decision; if you followed our advice and included a deadline by which they must respond, you’ll know how long the waiting game could take. Because the seller could respond with a counteroffer, the negotiations may take some time, but don’t be discouraged! If you’re using an agent, they can advise you on how to respond to a counteroffer; if you’re not, review the document closely before making your decision.
When the seller accepts your offer, you do get to take a brief moment to celebrate, but the work isn’t done yet. There will be additional paperwork, carried out by a legal real estate expert, indicating both you and the seller are agreeing to the sale. Additionally, you’ll need to move forward with finalizing financing, scheduling appraisals and inspections, and other tasks.
Overall, the process can take time and will certainly require a lot of brainpower. While you can go it alone, consider working with an agent to help make sure all the pieces line up and nothing is missing from your offer letter. And throughout the entire process, remember why you’re going through all this work. It’ll pay off.
Still looking for your dream home, or have other questions about the homebuilding and buying process? Check out up-to-date listings and informative articles on NewHomeSource!
Mia Zozobrado joined Builders Digital Experience (BDX) in 2019 as a content writer. A graduate of Southwestern University with a degree in English, Mia is passionate about the written word and making connections. Outside of work, Mia also serves on the Board of Directors for the Writers’ League of Texas.