Your First Offer Should Not Be Your Best

Before you begin fantasizing about your dream house and how you will furnish it, you have to make the sellers an offer that they can't refuse. Should you give them what they are asking, or should you offer a few thousand less?

There are no set rules regarding making offers. Your first bid signals that you have begun the negotiations, and most likely you and the seller will go back and forth with offers before reaching an agreement.

Give yourself room to haggle. It's usually best to offer a first bid that's below the list price and less than you can afford. Generally that offer should be between 5 and 10 percent below the list price. It is important to know the housing market in the area before making an offer. If the home is in a hot sellers market, you are probably going to be competing with other bidders and you may have to offer the list price or higher.

If the market is more favorable for you, the buyer, then you should research a fair offering price. Find out what other houses in the area have sold for. Ask your real estate agent for their opinion and what the comparable home prices are.

Once you have established your price range then consider things that could raise or lower the value of the home, such as additions, renovations, repairs that need to be made or structural flaws.

Understanding the sellers' motivation is also important when determining what to offer. A seller who has to sell quickly might be open to a lower bid. Your realtor should be able to tell you how long the house has been listed on the market and any price reductions. Other bargaining chips include items in the sale, occupancy date, transaction costs and home warranties. For example, you can offer more in return for the appliances and/or lighting fixtures.

If possible, include a pre qualification letter with your offer; it may make your offer more appealing. It also conveys that you are serious.

Be prepared to negotiate. Think about what to include in your initial offer. If its accepted, it will become a legally binding document and you will be required to follow through with the purchase or risk losing your deposit. Discuss your terms with your realtor before submitting any offers.

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