Make A Smart Offer
A smart offer balances price, protections and timing. Your agent will review comparable sales to suggest a price, then you decide which contingencies to include, how large an earnest money deposit to make and what, if anything, to ask the seller to pay. Terms matter as much as the price, so review each one carefully.
Key Takeaways
- Base your price on recent comparable sales, the home’s condition and how much competition exists, not on the list price alone.
- Contingencies give you the right to cancel or renegotiate if inspection, appraisal or loan conditions are not met, but fewer contingencies can make an offer look stronger and carry more risk.
- Earnest money is commonly about 1% to 3% of the price and is credited to you at closing if the deal closes.
- Your agent, and an attorney if you want one, should explain the contract terms; Lendia does not give legal advice.
How do you decide what to offer?
Start with the comparative market analysis your agent prepares from recent sales of similar homes (see house hunting). Then adjust for what is specific to this home: condition, location on the street, upgrades, lot, and the seller’s situation. The longer a home has been listed and the fewer showings it has had, the more room you generally have to negotiate. A freshly listed home in a hot neighborhood may draw several offers, and the price needed to win may be above the asking price.
Before you decide on a number, check it against your budget. Confirm your total cash needs and monthly payment with your loan officer, because a higher price changes your down payment, closing costs and DTI (how much home you can afford).
What contingencies should you consider?
A contingency is a condition in the purchase contract that must be satisfied, or removed by you in writing, before your deposit is fully at risk. In California, the standard purchase agreement forms address common contingencies and give the buyer a defined number of days to complete each investigation. The exact terms and deadlines are negotiated and written into the contract, so ask your agent to walk you through them.
| Contingency | What it protects | Trade-off |
|---|---|---|
| Inspection / investigation | Lets you inspect the home (home inspection) and cancel or renegotiate based on what you learn | Sellers prefer shorter periods or fewer repairs |
| Appraisal | Protects you if the lender’s appraised value comes in below the price (appraisal) | Shortening or waiving it means you may need to cover a gap in cash |
| Loan | Lets you cancel and recover your deposit if you cannot obtain financing as agreed | Sellers see financing risk, so a strong preapproval helps |
| Home sale | Gives you time to sell your current home | Many sellers decline it, especially in busy markets |
Even with a preapproval, a loan contingency is a key safety net, because a preapproval is not a final approval. The lender still must review the property, the appraisal and your final documents. Removing any contingency means you accept the associated risk, so only do it after talking through the possible losses with your agent and your loan officer.
If other offers are likely, your agent may suggest shortening time frames or limiting contingencies. That can make your offer more attractive to a seller, but it also reduces your protection and can put your deposit at risk. It is a business decision to make with eyes open, not a requirement.
How does earnest money work?
Earnest money, also called a good-faith or escrow deposit, shows the seller you are serious. It is commonly about 1% to 3% of the purchase price and is negotiable. It is delivered to the escrow company after the offer is accepted and is held there. If the sale closes, the deposit is credited toward your down payment and closing costs. If you cancel for a reason covered by a contingency within the stated time, you can generally recover it. If you cancel for a reason not covered, the seller may be entitled to keep some or all of it, depending on the contract.
Keep your deposit funds documented and seasoned in your account, because underwriters will ask where the money came from. If a gift or assistance program helps, tell us early. For rules on gifts, see our guide on gift funds for conventional loans.
What are escalation clauses?
An escalation clause says that if the seller receives a higher competing offer, your price will increase automatically, usually by a set amount above the highest competing offer, up to a maximum you choose. It lets you avoid guessing the winning number, but it also reveals your top price and may require proof of the competing offer. Some sellers and agents like these clauses, others do not.
Can you ask the seller to help with closing costs?
Often, yes. Sellers sometimes agree to credit part of your closing costs, especially when a home has been on the market for a while. Each loan program caps these credits. On conventional loans for a primary residence, the limit is 3% of the price when the down payment is under 10%, 6% with a 10% to 25% down payment, and 9% with more than 25% down. FHA allows up to 6%. VA limits other seller concessions to 4%, and the seller may pay normal closing costs and points.
For details by program, see conventional seller concessions and FHA seller concessions. You can also see our guides to conventional loans, FHA loans and VA loans.
What happens after you submit the offer?
The seller may accept, reject or send a counteroffer. A counteroffer changes one or more terms, such as price, closing date, repairs or credits, and replaces your offer. You can accept it, counter again or walk away. Only a signed agreement by both sides creates a contract.
- Acceptance: Escrow is opened and your earnest money is deposited within the time stated in the contract.
- Investigation period: You order the inspection and review disclosures, then complete or remove contingencies in writing.
- Appraisal and underwriting: Your lender orders the appraisal and finishes verifying your file.
- Closing: Final documents are signed and the sale is recorded (close on your new home).
Contracts include dates for each of these stages. Missing a deadline can affect your rights, so keep a calendar and stay in close contact with your agent and loan officer.
Who explains the contract?
The purchase agreement is a legal document. Your real estate agent can explain the standard forms and typical practices, and a real estate attorney can review terms if you want legal advice. At Lendia, we can explain how the terms affect your financing, but we do not give legal advice.
At Lendia, we help you write an offer that your loan can support
At Lendia, we compare options from multiple lenders to fit your situation, and we can review your offer terms with your agent so the price, deposit and timeline match your financing. Contact us or get a rate quote now. Rates and terms depend on your situation; approval requires qualification.
Frequently Asked Questions
Should I offer less than the asking price?
It depends on comparable sales, condition and competition. Your agent can show whether homes nearby are selling above, at or below list price.
Do I lose my earnest money if I back out?
Not if you cancel under a valid contingency within the agreed time. If you cancel for another reason, you may lose some or all of it, depending on the contract.
Is a loan contingency still needed if I am preapproved?
It is usually wise to keep one. A preapproval is not a final approval, and the property, appraisal and your documents still must be verified.
Is an escalation clause a good idea?
It can help in competitive situations, but it exposes your maximum price and does not guarantee the appraisal will support it. Discuss it with your agent first.
How long does the seller have to answer my offer?
Your offer states a deadline for a response. Your agent will set it to match the situation.
Can I ask for repairs or credits in the offer itself?
Yes, but most repair requests are made after the inspection. See get a home inspection.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.