So you’ve found it. It’s the right house. It’s the one you want. It’s home.

So how do you go about making it yours?

Once you’ve decided on the house you want to buy, your agent will prepare an offer. “Making an offer” isn’t as simple as having your agent call their agent and say “We’ll give you 400K for it.” No, that would be much too simple.

What you will be preparing is in reality much more than an “offer.” It is a complete contract which, if accepted, will be the document that guides your entire transaction through its closing. It’s done here in Colorado on the official contract to buy and sell real estate that the Real Estate Commission changes every year. As of today I believe the entire contract is 16 pages long. It covers just about every contingency that could possibly occur in a real estate transaction.

So you have to make decisions about much more than just the price you’re willing to pay. You’ll be laying out all of the dates and deadlines involved with the transaction, including the date of the final closing. You’ll be telling them how much you’ll be borrowing, how much you’ll be giving them as earnest money and how much you’ll be putting down at closing. You’ll specify whether the purchase is contingent on the sale of your existing home. Etc., etc.

So you’ve got some decisions to make.

The most obvious is the price. This is a tricky one. Everybody’s looking for a formula. “People tell me that the market is depressed, so buyers should always start out 20% lower (or 10%, or 30%, or whatever mood “people” are in that day.) Let me tell you, “people” don’t always know all that much.

There are a lot of factors that go into determining the price at which to begin bidding on a house. First and foremost is the market value. That is determined by looking at what other similar houses in the same area have sold for recently. Not, that’s sold, not just listed. People can ask any price they’d like for their house. It doesn’t reflect reality unless somebody is actually willing to pay it. Market value is important because it reflects the price that the seller can reasonably expect to get for their house, and gives the buyer a clue as to how low they’ll be willing to go.

Your agent will research the neighborhood, to find out what the sold “comps” (comparable sales) tell you about how the seller has priced the house. Maybe they’ve priced it high and they’re dreaming if they think they can really get that price. Maybe they’re realistic and they have a good agent who has researched the market and they’ve priced their home exactly where it should be for today’s market conditions. Maybe they’re very eager to sell, so they’ve deliberately priced it low for a quick sale. All of that will determine what your offer looks like. If they’re wildly overpriced, an offer that reflects reality (accompanied by some sold comps demonstrating that reality) would be perfectly appropriate. If they’re priced just right or low for market conditions, then the odds of their going for a lowball offer are probably slim to none. If they’re particularly eager to sell for some reason, they might be more likely to accept a lower offer. In general, sellers are most likely to negotiate on a house that’s been on the market for a while than one that was just listed. In the first few weeks, people tend to actually believe they’re going to get the price they’re asking. If they’ve priced low, they may be right. Right-priced properties sell much more quickly than those that are overpriced. Either way, nobody is likely to come down significantly within days of listing a property.

Too many of today’s buyers actually believe everything they hear on the news. They figure every seller must be desperate, that they can get a home for pennies on the dollar, and home owners will jump at the opportunity to give their homes away for considerably less than market value. So they sail in with incredibly low offers, and they’re shocked when the sellers say “No, thanks.”

I once received an offer on a recently-listed, vacant property that was already priced very competitively (ie low) because the sellers wanted to sell quickly. The offer we received was for $50,000 less than the already low asking price. The sellers, who had already moved out of state, were offended and said that they weren’t going to counter because they didn’t consider this a serious offer. The other agent was astonished that they wouldn’t even bother countering. She actually asked me “Do they realize they have holding costs?” As if the sellers didn’t know that they were writing a check for the mortgage every month. They saw the vacant listing and assumed the sellers were desperate and would take any offer that came their way. They assumed wrong. The house went on to sell — to someone else — for about 2% under the asking price.

I often warn buyers against “offending” sellers with a lowball offer. It’s not because I’m worried about hurting somebody’s feelings. This is a business transaction. But people who are selling their own homes are not “all business.” They’re sentimentally attached. They’ve lived in the home, decorated the home, improved the home. Sometimes they’ve even done the work themselves. And so, reasonable or not, they get offended when a stranger comes in and essentially says “We think your house is worth waaaaay less than you think it’s worth.”

The danger isn’t that the sellers’ feelings will be hurt and they won’t invite the buyers to their Christmas party. The danger is that a) the sellers refuse (as my sellers above did) any further negotiation, or b) they negotiate, but defensively and halfheartedly because they don’t like you. They don’t want to do business with you. They don’t want you to live in their precious, precious home because you clearly don’t appreciate it. Trust me — as the sellers’ agent who has had to deliver plenty of lowball offer to my clients — it’s very hard to get them back into the game once they’re offended. Even if a deal is reached, the bad feelings tend to color the entire transaction. Inspections are more difficult. Every little issue becomes a major issue because the parties don’t trust each other.

Obviously, you want to get the best price you can for the home you want. And it’s your agent’s job to help you do that. But part of that is bidding smart, understanding the psychology of the process and acting accordingly. Your agent, if he or she is good, can help you do that.

And that’s the only “formula” I know.