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.