We are now at the point in the process when you’ve found a home you hope to buy. This is a major milestone so congratulations are in order! In this phase you will be making an “offer” on the home for the seller to consider. This does not mean that you are actually buying the home, but agreeing to pay this price provided that certain contingencies can be met. 

In most cases, there are negotiations taking place on price as well as other aspects of the transaction. Make sure you are prepared to offer your top price and that you know which elements you are not willing to budge on. Stick to your guns, while showing some flexibility on other things that are not that important to you.

Deciding How Much to Offer

Deciding how much to pay for a home takes some finesse since this is not a hard science. Home prices are based on how much the seller wants, how much you’re willing to pay, plus what comparable homes in the immediate area have recently sold for. That being said, there are certain things you can do to assist you in making a good deal.

  • You can check home prices on Zillow as a starting point only. Their algorithm is known to be highly inaccurate. Market forces are what determine home prices in the end, not a mathematical formula.

  • Ask your Realtor to put together a Comparative Market Analysis (CMA), which most people in the industry refer to as “comps.” This report will include homes that are the same size and have the same or similar features as the one you are considering.

  • Decide what your maximum price is and stick to it. If you cannot get your seller to come down, you can walk away. There are many other homes still out there.

Your CMA is the most reliable source of hard data. It should be a compilation of the comps you’ve probably already seen as well as recently sold homes, active listings and pending sales.

An analysis of the comps in your area will allow you to quickly compare the features of homes in your area, like the age of the home, square footage, number of bedrooms and bathrooms, the size of the main rooms, any upgrades, and all the amenities, like fireplaces, patios and swimming pools. Your CMA should also have information on the local school district and each home’s HOA dues (if any) and property tax.

The finesse comes when you take the asking price, and then with the help of your agent, you adjust this figure based on how this house compares to the others in your area on certain features to come up with what you consider to be the fair-market value. If this figure is one that you are comfortable with, you can put in an offer to pay that price.

The Deposit

When the seller accepts an offer, the buyer customarily submits an agreed amount of money as a good faith deposit. The amount can vary depending on the location, but the reason for the deposit is to discourage buyers from reneging on the deal without risking a financial loss. 

If you make a deposit of $5,000 at the time of acceptance and you decide to back out for reasons other than the ones stipulated in the agreement, which are called contingencies, you risk forfeiting some or all of your $5,000 deposit.


Contingent offers are fairly common. This is when an offer has been made, which the seller accepts, but the final sale is contingent on specific criteria that must be met. These usually have to do with three major categories:

  1. Appraisal of home

  2. Results of the home inspection

  3. Final mortgage approval

Typically, these contingencies let the buyer back out, cancelling their offer and getting their deposit back if they have completed everything and responded by the specified dates. In general, the fewer contingencies you name, the more solid your offer appears. But we do at all recommend that you waive any of the main contingencies.

Appraisal Contingency

Your lender will have an appraiser come out to determine the home’s fair-market value. If it is determined that the value of the home is less than the agreed upon sale price, you are able to back out of buying the home based on the appraisal contingency for the following reasons:

  1. Most people would not be willing to overpay for a home

  2. Your lender would only lend based on the actual appraised value, which means you would have to come up with a larger down payment.

As an example, the Appraisal on a home you’ve agreed to pay $350,000 for comes in at $300,000:

  1. You have agreed to a 20% down payment on a $350,000 purchase price, which is $70,000, with your lender providing a mortgage of $280,000. 

  2. Your lender originally agreed to a loan of 80% “of the appraised value,” which in this case was $300,000 so 80% of that is only $240,000

  3. In order to buy the house at the agreed-upon price of $350,000 you would need to make a down payment of $110,000, which is substantially more than the $70,000 you planned on.

Under these conditions it is very understandable that you would cancel the deal. This is why it is never a good idea to waive the Appraisal Contingency on a home.

Inspection Contingency

A seller would be aware of all the things that are wrong with the house they’ve listed for sale. However, homebuyers have every right to have a professional home inspector come out and inspect the house thanks to the Inspection Contingency.


This protects buyers in two ways:

  1. You can always ask that the seller fix the problem

  2. If the problem is big enough, you have every right to completely back out of the deal

Hire good reputable home inspector because this is a critical matter. Make sure that you have as thorough an inspection as possible. Some Realtors are wary of good home inspectors since they have the power to derail the sale, so beware of any inspectors your Realtor recommends. 


Financing or Loan Contingency

The Financing or Loan Contingency can potentially allow either side to back out of the deal. With this contingency, buyers have a specific period of time to obtain final approval on their home loan or mortgage. If a buyer cannot get a lender to give them final loan approval, the buyer can get out of their agreement to buy the home and get their deposit back.

The dates specified in the agreement for this are very important. If the lender takes their time and gives you final loan approval after that time period has lapsed, the seller has the right to back out of the sale as well. Unfortunately, some lenders are known for being slow. You can hopefully avoid this problem by being very active throughout the financing process. Remind your lender of the deadline for final loan approval so that you can get your financing approved before the window closes on the Financing Contingency. 

Work With a Real Estate Agent and an Attorney

Negotiating an offer is something you will likely need help with. This is where your Realtor will be a big help, especially if you are a first-time homebuyer. When you make an offer you are essentially signing a contract and real estate contracts are complicated. A good reputable agent can guide you on exactly what you need to state in your offer. This is when their experience and knowledge of the market will come in handy. However, it always makes sense to have a good real estate attorney be involved in the process. In fact, there are states where only attorneys can legally prepare a real estate contract. In other states, licensed real estate agents are legally allowed to prepare these contracts by using pre-printed state-approved real estate forms.

Most real estate attorneys can be retained for a set fee for working on all the documents related to the transaction. If you’ve been given pre-approved forms, make sure that your attorney crafts very specific language in your contract because the forms may contain items that are not in your best interests. Furthermore, the terms itemized in the contract may include many different items aside from the purchase price. These would include your contingencies, financing, title work as well as the closing date. Just as in my situation with the roof repairs, I was able to get out of the contract because I specifically asked my attorney to draft my offer to include this contingency.

Contents of an Offer to Purchase a Home

  • Exact amount of the offer, including the date and time that the offer expires. The usual time frame for expiration is one or two days out, but you can specify any time frame that works for you.

  • Terms of the offer, including how you plan on financing the purchase, the closing date, time frame for home inspection to be completed, as well as any additional conditions that have to be satisfied for the offer to hold.

  • Any additional contingencies that you specifically name.

Presenting Your Offer

Once your offer has been carefully written, your agent will deliver it to the agent representing the seller, who will then present it to the seller. Your seller can accept your offer as written, and if so they will sign and return it to you within the one- or two-day time frame that you gave them. This is another major milestone, congratulations! You will now be legally bound by the terms set forth and are moving forward in buying this house. You will then wire or send a cashier’s check or money order for your good faith deposit.

Should the seller not like your offer, they can reject it out of hand. However, it you have offered close to what they’d be willing to accept, the seller would likely make a counter offer, which would normally include modifying some of the clauses. For example, they may not agree to the price you offered, they may want to change the closing date, or modify other things in your offer.

If the seller counters your offer, you have three options:

  1. Agree to their counter offer as is and sign your acceptance

  2. Reject their counter offer and simply walk away

  3. Counter their counter offer. You can go back and forth with counter offers as many times as necessary to reach agreement or until one you walks away.

Once both parties sign the agreement, several things must be completed within the specified time frame spelled out by the contract. You, as the buyer are obligated to perform most of the tasks required, which are:

  • Seller must fully disclose in writing everything wrong with the property.

  • Buyer must start the loan process with the lender.

  • Lender will order an appraisal to be done on the property.

  • Buyer must set up the home inspection.

This is one more major milestone. Congratulations! The ball is now rolling. You will now be waiting for things to happen and in the meantime you will be answering questions and dealing with a certain amount of paperwork.