An increasing number of housing markets in major metropolitan areas and surrounding communities have become "buyers' markets," meaning there are more houses for sale than there are buyers to purchase them. In these markets, motivated sellers may reduce prices and offer concessions to lure buyers in.

But prospective homebuyers should still proceed cautiously. To get the best deal, evaluate whether it is a good time for you to buy, learn the ins and outs of the market, consider the pros and cons of buying a foreclosed home, and take advantage of market conditions when you are negotiating the deal.

Is It Your Time to Buy?

Your first step to buying a home in a buyer's market is a little soul searching: Why do you want to buy? If you're tempted by the low prices and would stretch beyond your means even for a home with a discounted price, you could be setting yourself up for failure. Today's housing market is littered with the former homes of millions of consumers who borrowed more than they could afford. To figure out what's realistic for you, start by reading Nolo's article,  Qualifying for a Mortgage, and then plug some numbers into Nolo's online calculator,  How much home can I afford? 

Of course, no one knows when prices will hit rock bottom, and if you wait for prices to fall further, you could miss out. Because of this uncertainty, it's best to buy a home because you need a roof over your head -- if it's more affordable than renting -- and you plan on sticking with the home long enough to make the deal pay off. Buy because home ownership is good fit for your lifestyle, personal goals, and, of course, your budget. (For more help in determining if you are ready to buy a home, read Nolo's article Deciding Whether You're Ready to Buy a House.)

Know Your Housing Market

If you make the decision to buy, don't get swept up in what you see in the newspaper or on TV about the state of the housing market across the country. Check local coverage to find out what's happening in your market, even down to the neighborhood you want to buy in. In some regions, one block may be a buyer's market with a slew of available properties, but the next can be competitive, perhaps because the school is better. You're more likely to see this in metropolitan areas with diverse neighborhoods than in suburban communities or planned-unit developments that focus on uniformity.

Your real estate agent should be able to give you important market data pinpointed to the locale you hope to make home. These factors that will tell you whether it's a buyer's market: 

• High inventory. If there are many available properties on the market, this is a good indicator that it's a buyer's market. You will have a lot to choose from and can be pickier about which property you select.
• Slow appreciation. Your real estate agent should be able to show the economic trend -- that is, whether properties have gone up or down in value and at what pace. When properties stop climbing or have started falling, that's an indicator that your market is a buyer's market.
• Days on the market. Find out how long properties are on the market, on average, before they sell. If the time is very short, it's still a seller's market in that area. But if properties languish for months, and particularly if prices drop, that's a good indicator that you are in a good bargaining position.
• Selling prices. Your real estate agent will be able to show you not only what prices homes are listed at, but how much they're actually selling for. Often, this is well below the list price. These figures will tell you how competitive a market is -- if properties sell above their list price, that's an indicator that the market is not doing too badly in that area.
• The property's history. Sometimes, one property is either "hot" or "cold," and the price should be set accordingly. Perhaps the seller has owned the house for many years, and is unrealistic and inflexible when it comes to setting a price that reflects its true market value. Or maybe the seller is trying to avoid foreclosure and is willing to accept a very low offer to avoid it. Whatever the case, your agent should be able to give you important background information like this.

Learning about your particular real estate market will help you learn the true value of a property. This helps you set a realistic offer price and prevents you from overpaying. But even in a buyer's market, you shouldn't assume you can get a house for well below its value. Unless the seller is truly desperate, you risk alienating him by a giving a "lowball" offer and you may lose out on a good deal that will instead go to a more realistic buyer.

Get Basic Home Buying Information

Even if this isn't your first time buying a home, regulations, practices, and market conditions change. There are many opportunities to get some basic training on the current home buying process before you get started.

Informational resources include the Internet (stick with real estate news websites rather than those that are trying to sell you something as they "educate" you), real estate industry-sponsored seminars and workshops, and the vast library of real estate guide books. Mortgage brokers, loan officers, home ownership counselors, appraisers, home inspectors, and other professionals you meet along the way can also provide answers to targeted questions.

One of your real estate agent's jobs is to educate you about the home buying process, as well as market conditions. An "exclusive buyer agent" may be particularly attentive to your needs. Members of the National Association of Exclusive Buyer Agents (NAEBA) never represent sellers and are attuned to the issues buyers face. (To learn more about educating yourself about the home buying process, read Nolo's article Buying a Home: Overview.)

Get Preapproved for a Loan

Even in a buyer's market, it's a good idea to know for certain what you can afford. And it will definitely help your chances of snagging a great deal if you can show the seller, right away, that you're in a financial position to make the transaction happen. To do this, it's a good idea to get preapproved for a mortgage in advance. Preapproval means a lender has agreed to lend you a certain amount. Don't get this confused with prequalification -- that's just a lender's speculation about what it thinks you'll be able to borrow.

To learn more about financing your home purchase, and the difference between preapproval and prequalification, read Nolo's article  Where to Shop for a Home Loan or Mortgage.

Should You Look in the Distressed Housing Market?

The U.S. Census Bureau reported in early 2008 there were some 2.3 million unoccupied homes for sale. Many of them are from the ranks of an estimated 1 million+ foreclosed or repossessed homes on the market. But before you jump at these deals, remember that distressed properties may be more neglected and in disrepair than typical listings. Worse yet, these properties are often sold "as is," which means you aren't protected from problems you find later, either.

If you decide to look at distressed properties, get help from a real estate agent knowledgeable about foreclosures, auctions, and short sales. There are bargains to be had, but only if your agent has the sophisticated knowledge to deal with the inner workings of this esoteric sub-market. (To learn more about shopping for foreclosed homes, read Nolo's article Buying a Foreclosed Home: Pros and Cons.)

Negotiating a Home Purchase in a Buyer's Market

When it comes to negotiating the purchase contract, do some very detailed market research before making an offer. And consider asking the seller to make other monetary concessions. 

Research comps and just-closed sales. When you're ready to make an offer, it's not enough to gather a stack of comparable sales (recent sales of homes as identical as possible to the home you want to buy). Your agent should also get the list prices of similar homes currently for sale and the sales-price-to-list-price (SP/LP) average of just-closed sales. If list prices are trending lower than recent comparables and the SP/LP average is below 100 %, you've got a good shot at getting a lower-than-list-price offer accepted. Your real estate agent should be able to help you make market-condition-based calculations and zero in on a good target number.

Seek monetary concessions. In addition to negotiating a lower price, another way to make your offer work to your advantage is to ask the seller to cover some of the transaction or other costs you occur in a home sale. Virtually every cost is open to negotiation, including who pays title insurance, closing costs, transfer taxes, and even the points on your mortgage. Motivated sellers also have been known to make the buyer's first few mortgage payments, pay a year's worth of homeowners' association dues, cover property taxes or insurance premiums, and even help with the down payment or financing a second mortgage.

Turn down a home improvement offer. Some sellers may try to entice you with a new kitchen or bath, but it's a better idea to get a cash concession worth the cost of the improvement. Your tastes may not be the same as the seller's, and choosing your own contractor for home improvement work prevents construction complaints that can muddy the transaction.

Ask for tangible things instead. Instead of home improvements, ask for things you need (or just want), such as new kitchen appliances, a big screen flat-panel HDTV, or a fuel-efficient Vespa. A recent Consumer Reports survey found recent sellers offering vacations, golf carts, moving expenses, and home warranties.

To learn more about the ins and outs of buying a home, get Nolo's Essential Guide to Buying Your First Home , by Ilona Bray, Alayna Schroeder, and Marcia Stewart (Nolo).