Q: My wife and I have perfect credit and have stayed in our small affordable home for the last five years. We chose not to get trade up because we believed the real estate bubble would soon burst, and hoped we could maybe pick up the broken pieces and buy a more expensive home on the cheap.

Today we looked at a beautiful home that is worth less than the mortgage amount. The problem is that the whole house will need new carpeting thanks to the people’s dog not having being well-trained. Further, the current owners are chain smokers.

How do I determine how much lower than the asking price should I offer? And more importantly, why is the owner involved in the negotiating if the lender is the one that really lose out?

A: Until the lender forecloses on a property, the ownership doesn’t change. That’s why you’re negotiating with the homeowner and not the lender. If the lender foreclosed, you’d be negotiating with the lender’s real estate agent or the lender’s own representative — which might not be any easier.

What you need to do in this kind of situation is focus on what the property is really worth. Take a look at similar homes (in a similar condition) that have recently sold. How much did they sell for? If they were in better condition, you can subtract the price of replacing the carpet, painting the walls, and doing whatever else you need to do to get the house into perfect condition.

It’s possible that the home’s list price already reflects the lower prices of homes sold in the neighborhood. If that’s the case, yucky carpet and smoky walls or not, if the price of the property is on par with what is selling, you may not be able to get any more cash off the top to cover these necessary improvements.

The next stop is to present your offer. The seller may or may not agree to it. If the seller agrees, you’ll still need to get the lender to agree to the terms of the sale — if the price means the lender will have to accept a short sale. Make sure you get the lender involved early on, or you might waste everyone’s time.

And here’s another concern — if there is more than one lender, you’ll need to negotiate with both or all of them simultaneously. In cases where the primary lender is going to have to take a haircut, there will be no money left for the second lender. But that doesn’t necessarily mean the second lender will agree to the sale.

When going into a short sale, know that the deal will typically be much more complicated that you expect. I’d hire a real estate attorney to help with the negotiations, and rely perhaps less on your agent.