Once you have found the home you want to buy, you need to put together a winning proposal. Start with price, based on your agent's analysis of comparable closed sales (preferably from within the past few months), current listings (homes on the market that haven't yet sold) and pending sales (contracts that haven't yet closed). This will show you how much of a discount from the asking price you can reasonably expect. If homes currently sell at a discount of 8% from list price, then offering 15% less probably won't fly.
Prior to making the offer, your agent will probably try to scope out the seller's motivation. "Before they receive your offer, sellers give you bait. Once you're on the hook, they feel they can't tell you anything," says exclusive buyer's agent Benjamin Clark, in Salt Lake City. You may find out what the seller's bottom line is and whether you're competing with other offers.
A home's listing history can be revealing. The longer a property has been for sale, the more motivated -- or more desperate -- the seller. You can assume the seller is motivated if the price has been reduced. And if the seller has reduced the price, say, every 30 days and you're at day 21 since the last reduction, you may want to wait the extra week or two for the next one and then offer even less, suggests Clark.
If you come in too low, the seller may not even make a counteroffer or may be willing to come down only incrementally -- and you could end up overpaying after a "ridiculous" negotiation, says Coral Gables agent Linda Tartak. She tries to construct an offer the seller might just sign without a counteroffer. If you low-ball at the start, another bidder might come along and snatch the property away for a few thousand more -- a price you might have been willing to pay anyway. Looking for a steal? Just be prepared to lose multiple times before you win.
If you're trying to get a contract by the April 30 deadline for the home buyer's tax credit, beware. Sellers who smell your panic may hold a harder line. After the deadline, you may have less competition from other buyers.
Once you've decided on price, you need to build contingencies into the contract so that under certain circumstances you can nix the deal and recover your earnest-money deposit:
Financing. You want to find a loan with terms that are acceptable to you (within an amount of time that's acceptable to the seller).
Appraisal. If the appraisal required by your lender ($250 to $500) comes in below the agreed-upon purchase price, you can cancel the deal if the seller won't lower the price. Or you can ante up the difference in cash or split the difference.
Home inspection. You'll pay about $300 to $500 to an inspector, who will assess the property's condition. Depending on such factors as the home's age, seller disclosures and the results of the home inspection, you may also want tests for termites, lead paint, asbestos, radon or mold. If you're buying an older home or thinking of renovating, you may also want a special report from, say, a structural engineer or architect. Sellers may try to head you off at the pass by including their own contingency limiting their liability for discretionary repairs.
Selling your current home. It may put off a seller who wants to close fast, but if you can't afford to make two house payments, this is a necessity.