After months of searching for a dream home, you’ve found it, and now it’s time to make an offer! This guide will walk you through the exciting — and sometimes confusing — process of placing a contract on a home. We’ll discuss how to come up with a fair home price and evaluate the contract details.

Step 1:  Look at comps
Once you fall in love with a home and decide to make an offer, the first thing to do is look at the comps. “Comps” is the real estate codeword for “comparables.”  When you look at comps, you’re researching what other similar homes in the neighborhood have recently sold for. (Your real estate agent can help you find this pricing data.) Try to find data for at least three homes and then compare their final sale prices to their original listing prices.

You can use this comparison to help you make an offer. If the average difference between listing price and sales price is, say, five percent below asking, then you might make an offer that’s between eight and ten percent below asking. This way you and the seller have a little room to negotiate. But be warned that if you really want the house or if you’re in a very competitive housing market, you likely shouldn’t make a lowball offer.

Step 2:  Determine what stays and what goes
Looking at comps isn’t the only way to come up with a fair price when you’re trying to place an offer on a home. The other thing to consider is what stays and what goes in a home. If, for example, you want to keep the appliances in the home, you can negotiate with the seller to include them in the purchase price. In this case, you will want to add a bit more money to your offer to reflect that you want the appliances to stay.

You can use this same process if you see that a home needs major repairs. If, for example, the backyard is in disarray, you might subtract a bit from your offer to cover landscaping costs.

Once you decide which terms you’d like to negotiate with the seller, your real estate agent can include these items in a purchase offer and submit your offer to the seller.

Step 3:  Get a mortgage
When your real estate agent submits your offer to the seller’s agent, she’ll include a clause stating that the deal is contingent upon you securing financing. Once the seller agrees to a price, the deal can’t go forward until you go the bank and qualify for a mortgage in the amount you need to purchase the home. (Unless you’ve already been pre-approved for a mortgage, in which case, you’ll be able to seal the deal quicker.)

Step 4:  Deposit earnest money
You’ll also need to put down a good faith deposit when the seller accepts your offer. This deposit, which is called earnest money, shows the seller that you are serious about your offer. The earnest money — which is usually between one and ten percent of the purchase price — is held in an escrow account until the final sale. If the deal closes, the seller keeps the money. But, if the deal falls through, you’ll get your money back in the event that one of the contingency clauses fails.

Step 5:  Get inspections
A home inspection is one of these contingency clauses. When you place a contract on a home, a real estate agent usually includes a contingency clause stating that your offer is only good if the home passes inspection. If a home inspector finds that the home needs major repairs, you can either deduct the cost of the repairs from the offer or back out of the deal.

Step 6:  Seal the deal
Once all contingencies have been met, you must seal the deal by working with your bank. You’ll decide on the final terms of your mortgage and plunk down cash to cover a final credit check, processing fees, and a home appraisal. There are other fees associated with completing your offer to purchase a home, but these will be due at closing. Once you get to this step, it’s only a matter of time before that dream home becomes yours!