(MONEY Magazine) – A year ago, historically low interest rates and good economic news sent hordes of home shoppers knocking on the doors of sellers who were more than delighted to see them. Now, however, a slower economy and higher mortgage rates--up nearly a percentage point since last March--have thinned the crowds. The National Association of Realtors predicts that 1995 home sales will drop to 4.3 million units, down 5.7% from 1994's post-recession high of nearly 4.6 million units.

With demand lessening, prices will remain flat, disappointing sellers. According to the NAR, prices on average will keep pace with inflation by rising 3.5% or so but only because of double-digit gains in a few hot markets, such as Raleigh/Durham, N.C., Salt Lake City and Albuquerque. Meanwhile, whatever benefit buyers get from soft prices is likely to be absorbed by today's higher mortgage costs.

To help you come out ahead whether you're on the buying end or on the selling end of the deal, here are the answers to six questions covering the key issues that you need to consider in today's cooled-down housing market:

Q. How should I set my house's asking price?

The price should be your best estimate of the house's true market value. In the current environment, it's not smart for sellers to play games. An inflated price may cause your home to languish. After a month or more, it may seem like damaged goods and you may be compelled to accept less than you could have gotten earlier. Even in a hot market, overreaching may scare off buyers who simply can't swing the extra mortgage cost. To get the price right, don't depend on a single appraisal from a real estate agent, who might boost the figure to get your business or, worse, lower it to earn a quick commission at your expense. Instead, get estimates from agents at several brokerages. Then double-check the price yourself by looking up recent home sales in your local newspaper or county register. Note the selling prices of houses similar to yours in location, size and amenities--called comparables, in the trade--and set your price accordingly.

Q.How much should I bid on a house I'd like to buy?

Comparables will help here too. If it's a buyer's market, defined as one where prices are dropping or barely moving, you can play hardball and bid 5% or so below the comparable, particularly if the house has been on the market for a month or more. In a seller's market, where prices are increasing 7% or more annually, dickering probably won't help. However, if you're sure you won't commit suicide if you lose the house, try a bid 2% below asking price, especially if you already have a mortgage commitment and can promise a quick close.

Q.Should I get a fixed-rate or an adjustable-rate mortgage?

Grab a fixed rate. Generally, rates on adjustable-rate mortgages can rise as much as two points a year and six points over the life of the loan. But the current 8.6% rate on the average 30-year fixed-rate mortgage is only two percentage points higher than that on the average ARM. Unless you like to gamble, that's a small price to pay for three decades of stability. If you plan to move within two or three years, however, or if you can't afford a fixed rate with your current income but can count on a big income boost within a few years, an adjustable rate can make sense. There are a wide variety of adjustable choices, however, so shop around. One fairly new option is five- or 10-year ARMs, which offer a fixed rate for that initial period then readjust yearly. They cost a bit more than standard ARMs but provide more security.

Q.Should I try to sell my own house?

If you don't have much equity in your home, you may be tempted to sell it yourself to save the 6% commission most brokers extract. But bear in mind that only about 20% of all homes are sold by their owners, a figure that has remained fairly constant for 10 years. Obviously, few owners are prepared to sort the browsers from the serious prospects and close the deal. Also, without a broker, you'll be shut out of the multiple listing system run by your local Board of Realtors that brings your home to the attention of virtually all the agents and their customers in your area.

However, if you're comfortable playing salesman-and you hire a lawyer to oversee contract language for you-peddling your own home can work out fine. Desirable, well-priced homes often sell themselves anyway and, without a commission to factor in, you can even price your home a bit below the competition and still come out ahead. For $200 or so, you may be able to list your place in a directory of homes being sold by their owners. About 200 entrepreneurs around the country publish such guides. If you're undecided about whether to try to sell solo, check out How to Sell Your Own Home, a 67-minute video put together by Picket Fences, a Vermont publisher of owner-sold home directories. It takes you through the job of self-marketing step by step ($28.90; 800-836-5577).

Q.Do I need a broker to help me when I'm buying?

That depends on how informed and assertive a buyer you are. Unlike the traditional agent who looks out for the seller, a buyer-broker acts as your advocate, helping you find the home you want and then negotiate the lowest possible price. The best buyer-brokers are so-called exclusive agents--that is, they represent only buyers, never sellers, and thus are not tempted to push a house on which they stand to earn a commission. A true buyer-broker will bring a house's subtle flaws to your attention--such as an outdated property assessment that may mean sharply higher tax bills down the line--as well as coach you on how to get price cuts or concessions from the seller or even do the hard bargaining for you. Depending on the help offered, a buyer-broker might charge $60 to $125 an hour or, more typically, 2% to 3% of the price of the house you buy. Although an expert negotiator can usually trim a home's selling price more than you would be able to on your own, there are no guarantees. Furthermore, there are few standards regulatingbuyer-brokers. One helpful sign is that a broker has completed a certification course, such as the 16-hour one offered by the Real Estate Buyer Agency Council, a professional group. You can find a true buyer-broker in most states by calling Buyer's Resource (800-359-4092) and stipulating that you want an exclusive agent.

Q.What's the smartest way to spruce up my home?

Concentrate on first-impression improvements, such as washing all your windows, uncluttering closets, installing higher-wattage light bulbs to brighten the rooms and upgrading the hardware on your front door. For a few dollars more, consider painting dirty walls and planting flowers everywhere. You must, however, make obviously needed repairs. A dripping faucet, broken railing, rusty mailbox or malfunctioning lock signal wary buyers that your home isn't well-maintained. If anyone makes a bid at all, it will be at a "handyman's special" price. More worrisome signs--odors from a leaky oil furnace or a telltale whine in the central air conditioner--will almost certainly scare buyers off altogether.

All in all, it won't be easy to come out ahead in the current market. By keeping these points in mind, however, you'll be able to give it your best shot.