Real Estate Counter Offers 101: When in Doubt, Consult This Seller’s FAQ Sheet

What is a counter offer in real estate?

Once the buyers of your house have made a purchase offer, you’re dealing with one of three cases:

•   You accept the offer with no changes or conditions
•   You present a counter offer
•   You reject the offer and move forward

A counter offer will just about always touch on three main overarching factors: price, convenience and timing.

“It’s going to always be give and take with those three aspects of the contract,” says David Magua of Florida-based Keyes Company, who has more than two decades of experience.

“You’ve also got to take comps into consideration, things like do they have a concession for the roof, the plumbing, buyer’s closing costs. … so that when they make that counter to the buyer, they’re comparing their property to other comparables recently under contract or (sold).”

A seller’s counter offer typically specifies changes to at least one of the following:

Sale price, the most frequently contested item in a counter offer:

Sellers typically shift this in one of two directions: countering with their original asking price or presenting a price between the buyer’s offer and that original asking price.

That first instance indicates a lack of willingness to negotiate on price—but the second case is a green light for negotiations. At that point, a buyer can either go with the proposed price or counter with another that is more acceptable to them.

Closing costs, which a buyer will sometimes request that the seller cover at least in part:

This sometimes works in a buyer’s market, but a seller may come back with a simple no or agree to contribute a certain amount toward closing costs, meaning that the buyer will be financing his or her costs through their mortgage loan.

Closing date, to specify the timeline from the purchase contract through the final signatures:

For example, if the original offer specified a closing date 45 days from acceptance and the seller needs more time to vacate the home, they may present a counter proposing a longer escrow period to allow them the time to make their move. From there, the buyer can either accept or refuse.

Earnest money deposit amount, or how much the buyer will put down immediately after signing the contract:

This is a way for the buyer to show you the money and make their intentions to purchase your home clear. Keep in mind that, from the seller’s perspective, a larger deposit is preferred over a smaller one because it indicates a buyer is serious about following through.

Any buyer-requested contingencies, such as financing or a home inspection.

Some contingencies are standard (inspections, appraisals, title, and financing) and a seller won’t typically fight them unless they’ve got all the leverage.

A longer shot is the buyer making the purchase contingent based on the sale of their existing home—this is a fairly common contingency but more likely to be negotiated. One counter to the “sale of existing home” contingency is for the seller to add a kick-out clause to the contract. This gives a real estate agent the right to continue to show the property thus making it more likely that the house will sell.

Can the seller counter above asking price?

In a word, yes—but the market needs to able to justify that action and it often only works in multiple-offer situations, Magua said.

“We went through some very great times [when the real estate market was hot] and used to do that very often,” he said. “We would look at the offers … and make another offer higher than that.”

However, Magua holds that this move is less likely to work in a more balanced market—where buyers and sellers hold equal power—or a buyer’s market in which the there is more inventory than apparent buyer interest.

“It’s not a good idea … to counter higher than your asking price unless you started your marketing and your listing with a discounted price,” he said. “We haven’t gotten back to that (environment) yet. We did a lot of that from 2008 to 2011—list at $90,000 when we knew the market value was $100,000. We knew we’d always get the $100,000, but what it did was cause better offers with better timing and terms.”

One thing to keep in mind: if you as the seller are going to counter above asking price, you had better be confident that the property will appraise for that amount. Should it not appraise, your buyer will not be able to get their loan approved, and then you will find yourself having to decide between one of two routes: asking the buyers to bring more money to the table or lowering your asking price.

Can you withdraw your counter offer?

“If you have a multiple-offer scenario, you send out a multiple-offer disclosure, but not counter any in writing,” explains Magua. “You do it verbally. The first one to the table with what you want is the one who is going to get [the house]. Do not tie yourself, in a multiple-offer situation, to one in writing. If they’ve got your offer, they’ve got you.”

In other words: yes, you can withdraw, but also make sure you’re playing the game in a smart way. If you’ve got multiple offers, go for the one that most benefits you. That’s how the game is played.

Also, something to keep in mind is that a contract has two parts: offer and acceptance. However, there is a third part: communication of that acceptance. Remember that if you do plan to accept a buyer’s offer, but haven’t yet communicated that to their agent, they are also free to place an offer on another property. What’s good for the goose is also good for the gander.

Does the counter offer void the original offer?

According to Investopedia, a financial-education website providing consumer resources since 1999, a counter offer is a “reply to an original offer, which is greater or less than the original price. This type of offer voids a previous offer and the entity that presented that offer is no longer legally responsible for it.”

Once a counter offer comes in, it changes the terms of a contract officially.

With a counter offer, Magua added, you’ll want to institute a time limit to keep the deal moving quickly in one direction or another and prevent the house from stalling on the market.

“The problem with a totally open (time frame) is that there is a time gap problem,” Magua said. “What if another buyer comes in with a higher offer? You’re going to have to execute very quickly and very wisely without getting the first offerer riled up knowing that there is another offer on the table.”

It’s important to not quickly reveal to the buyer’s agent that another offer may be coming in, particularly when you’re in a counter offer situation.

“If you are getting another offer, you don’t really want to tell them until that offer arrives,” Magua said. “Then you can see what you’re dealing with.”

Can the seller make a counter offer on a full-price offer?

You bet. It may seem counterintuitive, but even though an offer may be full price and look great, what if the terms do not?

That’s why a counter offer always has those three aspects to it—price, convenience, timing—because the highest bid isn’t always the best package deal for a seller. You may still need to negotiate on who pays for the title search and whether you’ll include a home warranty, and terms like closing deadlines and the move-out date before you’re ready to sign on the dotted line.

Can you issue multiple counter offers to more than one buyer?

Yes, you can—verbally. However, you need to proceed with caution. “See, there’s a catch,” Magua said. “You’ve got to do it by the law, you’ve got to be ethical, you’ve got to look after the transaction.”

So your agent must tell all other agents that there are multiple offers and will verbally counter them all.

“You’re dancing,” Magua said. “You’re not going to hold hands; you’ll maybe just have your hands close to each other. It’s something to the effect of ‘we’re not going to give a written counter, but these are the terms that my seller is acceptable with. I’m going to share these same terms with other buyers’ agents.’”

There is no universally accepted law regarding multiple counters. In California, buyers must be notified in writing that there are multiple offers on the table. In other parts of the country, no such notification is required. In any event, sellers must be very careful that they do not sell their home to more than one party. As the seller, you’re also risking losing a good buyer by doing this if they decide the situation is too risky.

How does a seller or buyer accept a counter offer?

As soon as buyer and seller come to a final agreement, they’ll both need to sign the contract, likely using DocuSign or another similar online electronic-signature tool. That needs to happen immediately in order to lock in that offer as most counters have an expiration date.

“And there’s a reason for that, from a seller’s perspective,” Magua said. “If I (as a buyer’s agent) countered a seller and they accepted our terms, I would not ask the seller to execute that right away. Sometimes you overplay your hand, especially at the high price points. … When that verbal acceptance is done, the first people who need to sign are the buyer so that you have that in hand.”

Do you need to formally reject a counteroffer in writing?

This is typically considered the right way to do it. When declining, it’s recommended to make it clear why the counter is being declined and to be polite while doing so. While it’s unlikely you will want to make contact with the would-be buyer after the fact, it’s not entirely out of the question.

But Magua says that in real life, it doesn’t always happen like this.

“You don’t necessarily have to put it in writing in the contract itself. Should it be done that way? Probably yes. Does it happen in the real world? No.”

Hanging in the balance: How to navigate the counter offer process as the seller

When crafting your counter offer, keep in mind that it is not without its risks. There is always the chance that the buyer will decide to walk away. Sticking to your guns may work in a seller’s market, but not so well in a balanced or buyer’s market. As a seller, you’re juggling many priorities, financial as well as timing-related. You want the highest price, but you also need a purchase offer to jive with your moving schedule. A buyer can offer full price, but what if their time frame conflicts with yours?

This is where your agent comes in: he or she can best help advise you on the right approach to counter offers. In the end, though, you have to decide the best move for you. Your agent can help guide you through negotiations by breaking down the offer specifics. From there, you can decide whether to counter the counter or simply move on.

Header Image Source: (Alex Tan/ Death to the Stock Photo)