How to make the offer that wins, including setting the price, adding contingencies, and developing your strategy for competitive housing markets.

Once you've found a house you like, you must make a written offer to buy it. The seller will either accept your offer without changing it, make a counteroffer with one or more changes, or reject it outright.

Deciding How Much to Offer

Offer too little, and other bidders will beat you, or the owners will wait to receive higher offers. Offer too much, and you might be wasting your money. Consider the following factors when deciding how much to offer:

The advertised price of the house. Treat the asking price as only a rough estimate of what the seller would like to receive, and recognize that different sellers price houses differently. Some sellers deliberately overprice, others ask for pretty close to what they hope to get, and a few underprice their houses in the hope of attracting a flood of potential buyers who will compete and overbid. The seller has no obligation to sell to you or anyone at the advertised price.

What you can afford. What you can pay for a house will probably depend on how much you already have in cash and how much you can reasonably borrow in a mortgage. When figuring out the cost of the house, be sure to factor in your share of the closing costs, which will be about 2%-5% of the purchase price.

Prices for comparable houses. Before making an offer to purchase, you should know the selling prices of nearby houses similar to the one you're interested in buying. For reliable comparable prices (called "comps" in the real estate trade), keep the following guidelines in mind:

• A comparable sale should have occurred within the last three to six months (the more recent, however, the better). In a market where prices fluctuate fairly fast, comps should be houses that sold in the last month or so.
• A comparable sale should be for a house quite similar to the one you're interested in -- in terms of age, size, and type and number of rooms.
• A comparable sale should be within six to ten blocks of the house you want to buy -- or less, if a freeway or other dividing line splits the neighborhood.

Local real estate brokers will have good comparable sales data, and you can also find useful information online.

Whether the local real estate market is hot (prices are going up) or cold (prices are dropping). In competitive areas, you'll have to offer the asking price or more, and expect bidding wars to erupt among frenzied buyers. Homes often sell for 10%, 30%, or more above the asking price in hot markets.

You'll want to arrive at a bid amount that will beat out the competition -- but only just. Some buyers, however, deliberately bid sky-high in order to stop the madness and find a home as soon as possible, especially if they have been outbid on properties two or three times already.

In a cold market, you'll have more room to negotiate with the seller, and you may get a bargain.

The seller's needs. Remember that price alone is not the only consideration for sellers. Your ability to close the deal quickly -- for example, by having your loan preapproved, or by not including a contingency saying that you have to sell your existing house first -- is often crucial, especially in hot markets. Finally, your flexibility and sensitivity to the seller's needs -- whether it's extending the closing date for a seller who can't move for a few months or making the offer "as is," meaning that you pay for needed repairs -- may make or break your offer.

Whether the house is uniquely valuable to you. A modest house listed at a reasonable price may be a bargain if you have three kids, the house is in an excellent school district, and the lot is large enough to add on a few rooms. The same house may be overpriced, however, for a couple not planning to have children. Don't get so carried away with judging objective market considerations that you forget your personal needs.

Strategies for Beating Multiple Offers

If demand for homes is so high in your area that you feel like you're elbow to elbow with other eager home buyers, with home prices rising by the minute, it's crucial to develop a bidding strategy.

For example, you might bid on several houses at once. Legally, this isn't a problem as long as you don't find yourself with two offers outstanding simultaneously and neither hedged with significant contingencies. If you have two offers accepted at once, you'll need to formally revoke the one you don't want.

Another option is to prepare several bids at different prices. If you're lucky, you'll know beforehand how many people will be bidding on a particular house. If so, prepare your bid accordingly. Present the lowest bid if you're the only one making an offer, the next highest if there are only one or two other people making an offer, and your highest price if there are three or more bidders.

Think twice before you get caught in a bidding war. If you decide that a house is so attractively priced that you want to try to preempt other bidders by making the highest offer, it's crucial that you set a limit for yourself -- for example, $50,000 over the asking price and not a penny more.

You might also write a cover letter to accompany your offer, telling the seller about yourself, your desire and ability to take good care of the house and garden, and your interest in being flexible in order to make the deal go through. Remember that price alone is not the only consideration for sellers.

Adding Contingencies to Your Offer

Real estate offers almost always contain contingencies -- events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. For example, you may want to make your offer contingent on your qualifying for financing, the house passing certain physical inspections , or your ability to sell your existing house first.

Be aware, however, that the more contingencies you place in an offer, the less likely the seller is to accept it. In the hottest markets, sometimes the successful bidder will have taken a calculated risk and made an offer with no contingencies.

Counteroffers

Whether it's the only offer, or the first of many, a seller usually does not have to accept any particular offer. If a bid is way out of line pricewise, the seller is likely to reject the offer on the spot. But even very attractive offers are rarely accepted as written. More typically, the seller will respond with a written counteroffer accepting some or most of the offer terms, but proposing certain changes.

Most counteroffers propose changes in these areas:

• price -- the seller wants more money than offered
• closing date or occupancy date -- the seller needs more time to move out
• contingency on buyer's sale of current house -- the seller doesn't want to wait for this to occur
• inspection contingency -- the seller wants the buyer to schedule the inspections more quickly.

You can accept the seller's counteroffer, reject it, or present a "counter counteroffer." Then, the negotiations will continue until either a deal or an impasse is reached.

A contract is formed when either the seller or the buyer accepts all of the terms of the other's offer or counteroffer in writing within the time allowed. The buyer's first offer can create a contract only if the seller accepts it with no changes.