How much to offer on a house

You’ve found your dream home that checks all your must-have boxes, but it can be hard to determine how much you should offer for the home — many market and property factors go into the decision.

Many homes listed today are selling at or above their asking prices. In fact, according to a 2021 report from the National Association of Realtors, most buyers from mid-2020 to mid–2021 paid at least the full asking price for their homes, with 29% of those paying more. When home prices are at all-time highs, it’s even more important to have a strategy for the purchase offers you submit.

What is a reasonable offer on a house?

Many factors go into making a reasonable offer on a house. Your real estate agent (called a buyer’s agent) can help you determine a fair offer based on the overall housing market, the home’s comps, how long the home has been listed on the market and other variables.

For example, if your agent believes the home is overpriced to begin with based on these factors, then a reasonable offer may be below the asking price.

Purchase offer prices are typically negotiated after the seller receives your initial offer, so your agent may recommend a price that leaves room for those negotiations. For example, you may decide to offer 5% below the asking price so you and the seller can ultimately agree on a price in the middle.

When it makes sense to offer the asking price or less

You may decide to offer the asking price if the home hasn’t been listed for a long time and there aren’t many offers yet. If the seller is motivated to sell quickly, offering the asking price could up the chances of your offer being accepted. It might also make sense to see if the seller will accept less than the asking price in specific cases, however.

Making offers on vacant houses

A buyer’s agent can help you gauge a seller’s motivation in many different ways. One of those ways includes whether the home is vacant. If it’s vacant, there’s an assumption that the seller has already moved and is currently paying two mortgages (one for the listed home and another for the home they currently live in).

If a house has been on the market for a while, the seller may be willing to accept an offer lower than the asking price.

In this case, the seller may be more motivated to wrap up the sale quickly with an offer below the asking price. Also, your agent may be able to tell you if there are other offers on the table — this information can help you decide how competitive your initial offer should be.

Making offers on properties with low demand

Another insight your agent can provide to help you decide what to offer is how unique the home or property is. If it’s a one-of-a-kind property, there may not be as much interest.

For example, homes with many acres of land aren't as sought after as homes situated on just an acre. Many buyers don’t want to pay for and maintain that much land. Your agent may advise you to offer below the asking price in those cases.

Making offers based on available comps

Offers below the asking price may be appropriate given the market and the available comps. For instance, if your agent advises that the home is a bit overpriced based on the comps, you may decide to offer a price that’s more in line with what similar homes are selling for in the area.

This strategy can be beneficial in securing a home for a price that aligns with its value, but a price with too deep of a discount could offend sellers. As a general rule, it may be unreasonable to ask the seller to consider offers 10% or below the asking price.

Keep your preapproved loan limit in mind

In addition to offering a price that aligns with the value, you want to consider your preapproved loan amount (which is the maximum amount the lender will lend to you). If you are searching for homes near your price limit, you’ll want to keep in mind that the final sale price could be higher than the list price, which would put you over your preapproved loan amount.

You may want to consider homes in the middle of your price range so you have some wiggle room for negotiations if a bidding war occurs between many potential buyers.

When it makes sense to offer more

There are times when offering more than the asking price can be a strategic move to secure your dream home. It’s not uncommon for homes to sell above asking price during a seller’s market, which is when the supply of homes listed for sale is lower than the number of homes demanded by buyers. For example, in May 2021, 50.7% of homes were selling above their list prices, compared with 26.1% in May 2020, according to an analysis by Redfin.

When offering more than the asking price, remember that your lender typically will require the home to appraise at or above the price you pay.

You may decide to offer more than the asking price if the seller is expected to receive multiple offers and has a short deadline to choose one. Your agent may advise beginning with a strong initial offer over the asking price.

In addition to offering more than the asking price, you may also include more due diligence money to show the seller you're a serious buyer. Due diligence money (unlike earnest money) is nonrefundable; if the buyer backs out of the deal later, they can't get these funds back, so a higher due diligence fee shows the seller your confidence in the deal. In a buyer’s market, due diligence money may equate to $500 or less; it may increase to $1,000 or more in a seller's market.

When making offers over the asking price, be aware that your lender will still require the home to appraise at or above the price you'll pay for the home. If it doesn’t, the lender may not give you the loan or would require you to pay cash for the difference between the price and the loan amount.

An appraisal contingency clause is placed within the purchase offer to protect buyers in these situations. It’s a specific type of clause that allows the buyer to back out of the deal if the home does not appraise for the purchase price.

How much should you offer over the asking price?

There’s no rule of thumb for how much you should offer over the asking price — the strategy can vary greatly depending on the market and the demand for the home itself. Real estate experts generally suggest offering at least 1% over the asking price if you want your offer to be competitive.

So, if you want to buy a home that’s listed at $250,000, you may want to submit an offer for $252,500. Your agent may also advise you to include additional items with your offer, like more due diligence funds or a shorter closing period, to sweeten the deal for the seller.

You want to leave room for negotiations, so you may not want to start with your best and final offer (unless the seller has multiple offers and the agent requests all best offers by a certain deadline). Again, your real estate agent can help you evaluate the situation and decide on the best initial offer price. Their expertise and market knowledge can prove invaluable in negotiations.

Whatever price you decide to offer, make sure it’s within your budget and gives you a mortgage payment that you feel comfortable with. Paying a premium for a home at the top of your budget may leave you strained financially in the future. You may find it best to search for homes with list prices more in the middle of your price range.

Before you begin negotiations, you may want to consider the monthly mortgage payment for each predicted price increase so you are fully aware of how your offer will affect your budget. Even small increases of just a few thousand dollars can increase your mortgage payment by $50 or more.

Bottom line: Should you offer over the asking price?

You may decide to offer over the asking price if the home is worth the cost and you can comfortably afford the additional price increase. In a seller’s market, it’s common for buyers to offer over the asking price because they anticipate multiple offers on a single property. Your agent can advise whether or not the price still aligns with comps in the area.

However, in a buyer’s market, it may be appropriate to offer below the asking price. Buyers tend to have the upper hand in negotiations because sellers may not generate as much interest in their listings and are more eager to sell when they can.

Regardless of the housing market you find yourself in, if a seller does not accept your best offer, be patient and keep searching for the right home at the right price for you. In the end, it’s better to secure a home that you can afford than to win a bidding war on a home that will stretch your budget to its breaking point.