How to make an offer on a house
Published 10:56 pm 7 Feb 2021
You’ve found your dream home or discovered the perfect investment property. Now, how do you go about making an offer to acquire it? First-time property buyers often find the process of making an offer nerve-wracking. If you offer to high a price, you may end up paying too much for the property. Too low and you may create bad blood with the vendor and sour the deal. Then there’s the paperwork, financing, and contract negotiations to consider.
Table Of Content
- What do you need to put an offer on a house
- How do I make an offer on a house
- What happens when you make an offer on a house
- Can you withdraw an offer on a house before it is accepted
- What is considered a lowball offer
- Can a seller back out of an accepted offer on a house
- How much is a deposit on a house offer
- Is making an offer on a house legally binding
- Do sellers have to respond to an offer
- Can you bid lower on a house
- Do I need a lawyer to make an offer on a house
- Can you put an offer on a house that already has an accepted offer
- Cooling off periods state-by-state
Read through this guide to educate yourself on the different steps of the offer making process and you will place yourself in the best position possible to secure your dream property.
What do you need to put an offer on a house?
You can’t buy a property if you don’t have the money needed. Before you even consider pitching a price to a vendor, the first step is to find a lending institution and secure a pre-approval on a loan. This will help you determine how much you can afford to offer in the first place. When all the groundwork is done, and you’ve got your eyes on that perfect piece of real estate, you can more confidently approach the vendor, or property agent, with a price you’re willing to pay. Which leads to the next most important thing – a property or real estate agent. Although you can do it alone, having a professional in your corner takes the pressure off. A good property agent can take the guess work out of how to approach a vendor, and how the initiate the process of purchasing.
How do I make an offer on a house?
Making an offer can be as simple as verbally telling the vendor what you want to pay for a property. However, given the size of the investment involved, it makes sense to put things in writing to ensure there are no misunderstandings. Best practice is to put pen to paper in the form of a Letter of Offer that you submit to the real estate agent involved. Your offer should include how much you are willing to pay and any conditions to the sale, such as repairs, deposit amount or timeframe for moving in.
The Letter of Offer should also include the names and addresses of both the seller and buyer; the offered purchase price and address of the property; the settlement date when the buyer intends to pay and obtain the title; and details of how you wish to pay the deposit, whether it be cash or by transfer. Also include: any inclusions you intend to buy with the house, such as large appliances; conditions or contingencies of sale, such as pest control or building inspections; any additional contract clauses. Use specific clauses to ensure features of the home are fully functioning upon purchase such as the swimming pool, the electrical and gas network.
Be mindful that timing is important. One strategy is to make an offer early and quickly, and ensure that offer is unconditional – that it is not contingent on you first getting financial approval. And although it is hard to imagine being in debt for hundreds of thousands of dollars, make the best offer you can.
What happens when you make an offer on a house?
Just because you have put in an offer, doesn’t mean that offer is going to be accepted. The first thing to do is to get a contract of sale which should be looked over by your solicitor to ensure that everything is covered and the sale is legitimate. After that first offer is submitted, it’s usually a process of to-ing and fro-ing until the vendor and their property agent are confident they have got the best price possible for themselves. Once an agreement has been reached, you will typically be asked to pay a negotiated holding deposit to show you are serious about the purchase. It’s important to note that this holding deposit does not preclude the seller from taking offers or expressions of interest from other interested parties. If a bigger offer comes in, the real estate agent will ask if you can increase your own offer. If you can’t, the holding deposit is refundable.
Can you withdraw an offer on a house before it is accepted?
Of course. Under contract law you do not have a legally binding contract until the offer is accepted by the seller. If you haven’t signed on the dotted line, you are free to withdraw the offer. It can be as easy as a phone call to the agent to let them know you are no longer interested but it’s best, once again, to do so in writing, usually via email.
If you do decide you want to revoke an offer, don’t waste time. It becomes much more difficult and costly to revoke an offer once documents are drawn up.
Most states also have mandated cooling-off periods. This gives the buyer several days to reconsider their purchase after the exchange of contracts. However, withdrawing from the sale at this point will come at a financial cost to the buyer.
What is considered a lowball offer?
In some circumstances it may be a smart strategy to make a lowball offer – in other words, to offer significantly less than what you believe the property to be worth. The rule of thumb is that a lowball offer should be no more than 25 per cent below the asking price. Usually, a lowball bid will not be accepted, but sellers may show their hand when they come back to you with their counter offer. If it’s substantially lower than their original listed price, this may indicate the seller is desperate to off-load the property quickly and you may be able to get a better deal. On the other hand, if the seller comes back with little movement, negotiations may be a little more complex.
Can a seller back out of an accepted offer on a house?
Just like a buyer pulling out of a sale after an offer has been made, the seller can do the same. Legally, until contracts are exchanged, either party can withdraw their offer or acceptance. If the seller gets a better offer after an original offer has been made and verbally accepted, they can gazump you. Although gazumping may seem a little unethical, it is legal because until contracts have been exchanged, either party is free to change their mind even if a verbal or written offer and acceptance of a purchase price has been agreed. There are also cooling-off periods for both seller and buyer that are stipulated in the contract which allow for both parties to change their minds right up until a settlement has been reached.
However, when you pay a deposit, the agent must provide you with a receipt and tell you in writing that: they have no obligation to sell the property to you; you have no obligation to buy the property; and they’ll refund your deposit if you don’t end up entering into a contract to buy the property.
How much is a deposit on a house offer?
A home deposit is a contribution to the full purchase price, and is generally about 10 per cent of the purchase price, although some banks now require 20 per cent. Paying the deposit amount is considered an act of good faith by the purchaser that they intend to be bound by the contract and it is required once contracts have been exchanged by the buyer and seller. Vendors also have the right to set the deposit amount, so prospective purchasers should check the required deposit with the real estate salesperson before making an offer.
Is making an offer on a house legally binding?
There are two kinds of offers you can make on a property, but unless contracts are actually exchanged and signed, neither are legally binding.
You can make an Unconditional Offer which means that once the vendor has accepted your offer and contracts are exchanged, you are legally obliged to go through with the sale (subject to your rights to terminate at law and under the contract in a limited range of circumstances). Or you can make a Conditional Offer which once you’ve exchanged, is also a binding contract, but only if all the conditions specified in the contract are satisfied. Otherwise you can legally back out.
When you submit a written offer, you should include any special terms and conditions for the sale of the home such as a longer settlement period so you can sell your previous home, or perhaps the owner needs to fix up a certain part of the home. These conditions need to be included in the offer and the final contract of sale.
Do sellers have to respond to an offer?
Once you’ve made an offer it’s important to wait for the seller’s response. If they won’t respond to your offer, then walk away. Don’t be tempted to make a further offer without hearing from the vendor as this may send the message that you’re too keen and unscrupulous vendors may take advantage of you.
Can you bid lower on a house?
While you can make an offer that’s any amount below the asking price, the lower you go the higher the chance the seller will reject your offer. However, also remember the selling agent will more than likely have a higher price listed for the property than what the vendor actually asking.
If your finances are in order and you’re positive the property is what you want, then decide on your offer – and most often that is lower than the listing. Research the market before making an offer, to see what similar properties in the area may have recently sold for to get an idea about what would be acceptable. If you are confident of your own judgement make an offer of whatever value you see fit. But if you aren’t confident in your own ability to accurately judge the value of a property compared to the asking price then you can enlist the help of a property valuer.
Do I need a lawyer to make an offer on a house?
As every offer you make has the potential to be legally binding, particularly if you make it in writing in the form of a signed contract of sale, it’s best to have some legal representation or advice. Having legal advice on hand allows you to not only add in the necessary clauses, but also alter the document to ensure that you provide the settlement terms (and length of time for settlement) that will best suit your ends.
Can you put an offer on a house that already has an accepted offer?
Once an offer has been signed off by the seller, the property is under a legally binding contract with buyer and seller and the owner cannot accept any other offers, even if they are higher. When a property has had an offer formally accepted and signed for it is sold to the buyer and is usually marked as being under contract or offer, before the final “sold” sticker is displayed. This is because there may be some conditions to the offer that need to be finalised before the buyer goes ahead unconditionally with the sale. However, if the “sold” sticker hasn’t been put up, you can make an approach to the real estate agent. While a property is still “under contract” or offer it usually means the sale is waiting for a few things to finalise such as the cooling off period, or various inspections to be completed. You can make inquiries into the sale and wait to see what happens and if it goes back on the market be ready to make your own offer.
Cooling off periods state-by-state
A cooling off period is a period of time after a property contract has been signed in which the buyer can legally back out of the sale. It starts on the day you sign the contract, and usually lasts five business days (Sundays and public holidays aren’t included), but this varies by state. Some states don’t have a mandated cooling off period, so it’s a good idea to ask your solicitor about what rules apply in your area.
Cooling off periods only apply to private treaty sales, not auctions. However, if you and the vendor personally negotiate a contract after the auction, a cooling off period may apply.
Cancelling a contract comes with a penalty, which is a percentage of the total selling price of the property. This percentage varies by state. Once the contract has been terminated, the seller must give back the deposit minus the penalty within 14 days.
In NSW, ACT and Queensland, the cooling off period is five days, with a 0.25 per cent forfeit of the sale price. In Victoria, the cooling off period is only three days with a 0.2 per cent forfeit, while in South Australia, there is only a two-day cooling off and a forfeit of around a $100 holding deposit. In Western Australia there is no cooling off period so check with your solicitor about what is required. In the Northern Territory, the buyer is entitled to a cooling-off period of four business days, however this can be waived or amended if both parties agree and the purchase deposit and holding deposit are refunded to the buyer. Tasmania has no cooling-off period.
Frequently Asked Questions
Can I pull out of a contract after my offer is accepted?
Even after making a formal offer the buyer has several stages to withdraw from the sale before it is finalised. However, withdrawing from the sale at this point will come at a financial cost to the buyer. Whatever reasons for wishing to pull out of an offer of sale, it’s important to know where you stand legally when you make an offer and if the offer can be revoked or not.
How do you negotiate buying a house?
The first step towards a successful negotiation is working out the value of the home you hope to buy, and one of the best ways to do that is to look at recent sales of similar local properties. You should also attend open for inspections and keep an eye on auction clearance rates to determine whether it’s a sellers’ or buyers’ market.
An invaluable tip is to find out why the vendor is selling – downsizing, upsizing, divorce – it can determine how quickly the seller may want to offload the property. Another strategy is to submit a “Clayton’s offer” which is a non-legally-binding offer a buyer submits to get a clearer sense of the vendor’s motivation and what type of offer they’re likely to accept.
What to know before making an offer on a house?
There’s a handful of things you should know before making that first offer on a property.
First, it’s important to check if the vendor is even in a position to field and accept offers. Some agents won’t take any offers until a contract is available and others aren’t permitted to sell the property (for legal reasons) any other way than by auction.
Next, you should be certain you have pre-approval funds in place and a satisfactory deposit on hand. Always make sure you know what the contract entails. A qualified legal representative should read over the contract to ensure the property is what you understand it to be, and there is nothing hidden in the legalese that could impact on the contract or title of the property.
You should also make sure you know what the deposit terms and settlement timeframe is with the real estate agent before making an offer to ensure you can meet them without compromising your offer. Finally, find out the condition of the dwelling pre-sale with a building and pest inspection which can tell you what may need fixing before you buy the property and can help in the negotiations of a better price.
How to make a pre-auction offer?
Making a pre-auction offer is simple: you put in writing what you are prepared to pay for the property, then submit your offer a week or two before auction day. If your offer is accepted, you need to be organised and ready to make good on it, meaning you have to have your deposit ready to deliver to the vendor as soon as the offer is accepted. You also need to be ready to exchange contracts quickly. It could be worth having a solicitor look over the contract of sale before you put in your offer.
How do I make my offer stand out?
The first thing to consider is what are the market conditions at the time, and don’t just make an offer purely because you’re scared you may miss out on the deal. Don’t go in with a low-ball offer first off as it can backfire. Instead, offer to put up a larger deposit as this can be a lot more appealing to a vendor than a quick sale at a lower price.
You May Also like to Read
Will this highly contagious strain of COVID-19 affect property values? The Australian property market is currently...
Will this highly contagious strain of COVID-19 affect property values? Just one month after roughly half of Australia...
Across the country, Australian properties are being sold for multiples of what they were purchased for just several years...
Home to more than two million people, Perth is the sunniest city in the world, enjoying more sunlight year-round than...
Australia could see an additional intake of two million new migrants over the next five years. Will this be the catalyst to...
Things are about to get even hotter in Australia’s record-breaking property market. If the growth seen over 20-21 in...