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Steve McLinden, the Bankrate.com Real Estate Adviser
How low is too low an offer on a home?

Dear Steve,
I have found a house that I am comfortable with and would now like to make a bid. How low can I undercut the price and not insult the sellers to the point where they're unwilling to negotiate?
-- Jeff

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Dear Jeff,
It's the old limbo gambit: How low can you go without wiping out?

No doubt, you can undercut yourself right out of great house if you venture too low. It's not unusual for sellers to tell their agents not to field additional offers from a conspicuously low bidder, especially when other serious suitors are on the hook. But you can avoid that scenario with a little homework.

The most important weapons in the negotiation game are market knowledge, cognizance of the seller's motivation (or lack of it) and good old tact.

First off, your buyer's agent should be able to provide you with "comps," which are recent sales of homes comparable in size, acreage, floor plan, age, school district, etc. That should at least give you a starting point.

You should also know that on average, homes sell for 4 percent to 5 percent below asking price. Realizing this, owners typically list their homes higher than the amount they actually expect to receive, while would-be buyers often back down several percentage points below that mark as a starting point.

Therefore, a first offer of $138,000 for a home listing for $150,000 or so will probably not be considered an insult in the eyes of the seller in most markets. However, it may be one in parts of Florida, California, Arizona, the Northeast and other places where homes are rapidly appreciating.

Some gutsy negotiators will start as low as 15 percent under list in a slow market. But 3 percent under is about as low as you want to start in a hot seller's market and you'll probably be moved off that number in the negotiation process if you really want the place.

As for "motivated-seller" leverage, your agent should be able to determine if the home has been on the market awhile, or if the buyer needs to relocate quickly. These tidbits of info give you additional negotiating power.

If you're going low, be prepared to explain your offer. Needed repairs, lower comps or a need to replace the home's aging central heating/air-conditioning units, are a few examples. But don't say anything that reflects poorly on the buyer's tastes, such as "that lime-green carpet is going to get torn out the day we move in." Sometimes, pride alone can kill a deal.

The real trick is to let the buyer know that you are serious, but not so serious that you have no other options should negotiations fall apart.

Some find the art of haggling distasteful. But in the big scheme of things, consistently tough negotiators are going to pay a lot less for capital purchases in their lifetimes than timid ones. It's up to you to walk that fine line between insult and success.

For more on negotiations, see "How to win the offer-counteroffer game."

To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

Bankrate.com's corrections policy -- Updated: June 12, 2006
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