How to Make an Offer on a House and Negotiate

The asking price is the seller's opening position, not a measure of value. Start with recent sales of comparable homes: similar size, age, condition and location, sold in recent months. Your agent can assemble these into a comparative market analysis, adjusting for differences such as an extra bathroom, a garage or a dated kitchen.

Then consider market conditions. Useful signals include:

• Days on market. A home that has sat for a long time may have more room to negotiate than one that just listed.
• Price history. Reductions suggest the seller has already adjusted expectations.
• Competition. Multiple offers or a deadline for offers usually means less room to go below asking.
• Condition. Repairs you will need to make should be reflected in the price.
• Seller circumstances. A relocation, an estate sale or a pending foreclosure can make speed or certainty matter as much as price.

Finally, check the number against your own budget. Decide in advance the highest price you are willing to pay, and stick to it. Run that number through the mortgage calculator so you know exactly what the payment would be.

Keep the appraisal in mind too. If you offer well above recent sales, the home may appraise for less than your price; the guide to inspection, appraisal and underwriting explains your options if it does.

In most states your agent uses a standard purchase contract form, and once both sides sign, it is binding. The terms you choose include:

• Purchase price and how you will pay: the loan type and amount, and your down payment.
• Earnest money: the deposit amount, who holds it and when it is due.
• Contingencies: inspection, appraisal, financing, title and sometimes the sale of your current home, each with a deadline.
• Closing date and when you take possession.
• Seller concessions: for example, a credit toward your closing costs, subject to limits set by your loan program.
• Inclusions and exclusions: appliances, fixtures and other items that stay or go.
• An expiration time for the seller to respond.

Include your pre-approval letter or proof of funds. Sellers want to know you can close, and some will not consider an offer without it. The guide to documenting your funds for an offer explains which document fits which purchase.

Contract forms and customs vary by state and even by region within a state. In some areas attorneys draft or review the contract; in others agents use forms from the state or local Realtor association. If you are unsure what a clause means, ask before you sign, and consider a real estate attorney for anything unusual.

Earnest money is a good-faith deposit you make once your offer is accepted. It is usually held by a title company, escrow company, attorney or broker, and is credited toward your down payment or closing costs at closing.

How much to deposit depends on local custom and how competitive the market is. Amounts are commonly expressed as a percentage of the price or as a flat sum. A larger deposit signals commitment, but it also puts more of your money at risk.

Whether you get the deposit back if the deal falls apart depends on your contract. Generally:

• If you cancel under a contingency, within its deadline and following the contract's notice requirements, the deposit is usually returned.
• If you back out for a reason the contract does not allow, or miss a deadline, the seller may be entitled to keep it.
• If the seller defaults, you are usually entitled to a refund and possibly other remedies.

Disputes over deposits are not unusual, and the holder may not release the money until both sides agree or a court or arbitrator decides. That is one more reason to read the contingency and default clauses closely.

Before you send the deposit, confirm the payment instructions with the escrow holder by phone. The same wire fraud precautions apply as on closing day.

A contingency is a condition that must be met for the sale to go ahead. Contingencies protect you, but sellers may see a long list of them as a risk to the deal. In competitive markets buyers sometimes shorten or waive them to stand out.

There are middle grounds. You can shorten a deadline rather than waive it, agree to cover an appraisal gap up to a set amount, or do an inspection for information only, without asking for repairs.

Only waive a protection you can afford to lose. If you could not close without the loan, waiving the financing contingency puts your deposit at real risk.

The seller can accept your offer, reject it or make a counteroffer that changes one or more terms. You can then accept, reject or counter again. Each new counter typically replaces the previous offer, so once you counter, the earlier terms are generally no longer on the table.

A few practical points help:

• Negotiate the whole package, not just the price. A seller who will not move on price may accept a credit toward closing costs, a different closing date or the inclusion of appliances.
• Know your limit before you start. Decide your maximum price and the terms that matter most, so you are not making those decisions under time pressure.
• Watch the response deadline. Offers and counteroffers usually expire at a stated time. A late acceptance may not create a contract.
• Keep everything in writing. Verbal agreements on price or terms generally are not enforceable for real estate. Your agent should document each change.

If several buyers are competing, the seller may ask everyone for a "highest and best" offer. That is your last chance to improve your terms, and there may be no further negotiation.

Not every negotiation ends in a deal. Walking away from a home that does not fit your budget or your needs is a sound outcome, not a failure.

If your contract has an inspection contingency, the inspection report often opens a second round of negotiation. Before you respond, separate the findings into three groups:

• Safety and major systems, such as electrical hazards, roof leaks, foundation movement, plumbing failures or heating problems.
• Significant repairs that will cost real money soon.
• Minor and cosmetic items that come with any home.

Focus your requests on the first two groups. Asking for every small item can sour the negotiation and is rarely necessary.

You generally have three ways to ask for a remedy:

1. Repairs by the seller before closing, ideally by licensed contractors with receipts.
2. A credit at closing, which you then use toward repairs yourself, subject to your lender's rules on credits.
3. A price reduction, which lowers your loan and the purchase price.

Credits and price reductions give you control over who does the work and how. Repairs by the seller can be done to the minimum standard, so check them at your final walkthrough.

Get contractor estimates to support your request. A specific figure backed by a quote is easier to agree to than a general complaint. If the seller will not move and the issues are serious, cancelling within your contingency period may be the right decision.

Distressed sales follow the same basic logic, with extra parties and paperwork.

Short sales. In a short sale, the owner sells for less than the mortgage balance, so the lender must approve the sale. The owner may accept your offer, but the deal is not final until the lender agrees, which can take a long time and may come back with a counteroffer. Make sure your contract addresses what happens if approval is slow or denied. The guide to buying a pre-foreclosure covers short sales in detail.

Bank-owned homes. REO sellers usually sell as-is and add their own addenda that override parts of the standard contract, often limiting repairs, setting their own deadlines and penalties, and restricting what the seller discloses. They may require a pre-approval or proof of funds with every offer, as explained in proof of funds and pre-approval for REO offers. Read every addendum before signing. The guide to inspecting and negotiating REO properties explains what is typically negotiable.

Even when a home is sold as-is, keep your inspection contingency if you can. It does not oblige the seller to repair anything, but it gives you a defined window to learn the home's condition and decide whether to proceed.