How should you negotiate the price of a house?

First, do a bit of research regarding how much similar homes in the neighborhood have sold for within the past few months, and review your own finances to see if you can afford it. Regarding the particular house that you're interested in, find out how long it's been on the market; if a house is on the market a long time without any takers, eventually the owners will face the reality that their property is not as desirable as they think and they may lower their demands. If the sellers have already bought somewhere else and are now carrying two mortgages, this could also make them more eager to sell. On the other hand, the initial offer that you make for the house could be rejected, and the seller will usually name the price that he's looking for. This is your cue to up your offer and start negotiating.

You don't want to overpay on your house and end up house poor (this means that although you have a house, you've spent so much that you can barely afford anything else), but you don't want to lose a house you're really interested in. If you make too low an offer, the seller won't think you're serious, and if he has other potential buyers calling he won't even want to deal with you. An honest approach may work, as well. Try telling the seller, "Look, I'm interested in the house and this is what I can pay. If someone offers you more, let me know and I'll see if I can match it." If the seller likes you, he may come back to you and you'll get one more chance to make a counter-offer.