After the first offer has been submitted, sellers will most likely come back to buyers with a counteroffer.  Sellers will typically only not counter offers if they see the offer as being egregiously low (or high).  In down markets, sellers may also be more likely to accept a well crafted first offer for fear of losing even more value while waiting for the next one.

If you have followed this guide and made a fact-based offer based on your returns and constrains as an investor, the counteroffer process will be fairly straight forward.  Start the counteroffer by giving on some of the less important contingencies (i.e., shorter due diligence period, seller financing, etc.).  Note, never give up the financing contingency.  No matter what anyone tells you, bank supported financing is never a guarantee and even if you can cover the entire purchase price, your return on investment will be significantly negatively impacted.  Again, NEVER give up the financing contingency.

Next, consider the price that the seller countered with.  Is this is hard counter or a soft counter.  Many sellers will try the nibble, countering with a 1-5% increase in price.  Don’t fall for that.  If a seller will sell a house for $105,000, they will probably also sell that same house for $100,000.  Buyers should be looking for specific selling price increases because it might not be possible for a seller to sell below a certain price.  There could be a recent second mortgage or refinance that you might not be aware of that has to be paid off at closing.  While the seller and their agent will probably not tell you this, their counteroffers might betray some additional information.

After giving on a few of the lesser contingencies and double checking your original offer price against market comparables, consider putting up additional earnest money.  Sellers will value a firm slightly lower offer with a strong closing potential higher than they will a high priced offer with a small earnest money deposit and heavy contingencies.  Additional earnest money costs a small amount in forgone interest payments, but could save you 1%-5% on your purchase price.

When instructing your real estate agent to send your counter offer, ensure that he/she sends the market research that you have done as well.  You want to communicate that your offer is fact-based and fair.

This strategy will vary based on the market conditions.  In a buyers market, buyers should be prepared to give very little and expect to receive three or four counteroffers.  In a sellers market, buyers should be prepared to ditch more of the contingencies (never the financing contingency) and do more market research.  Avoid getting so wrapped up in the negotiation process that you fudge the numbers so that you can offer a higher price.  Stick to your guns and wait for good deals. 

Remember, not every seller or buyer is sophisticated and many make a lot of mistakes.  If something seems to rich, it probably is.  Stay fact-based and unconnected.