Successful real estate transactions typically involve some back and forth between the buyer and seller. Refer to this guide for what to expect and how to keep your cool.
Buying a home is rarely as simple as making an offer. Negotiations can go back and forth for weeks before the seller and buyer are both satisfied. This type of negotiation is the counter offer in real estate — a complex rejection and counterto an offer on a house that’s made by either the buyer or seller.
Selling or buying a home is more of a process than a transaction, so it’s important to understand exactly what a counter offer entails. Use this guide as a baseline for strategizing your counter offer accordingly. After all, it can be tempting to go over your budget at this stage in your journey because you’re so close to landing your dream home (if you’re a buyer), or end up walking away with less than you hoped for (if you’re a seller).
What is a counter offer in real estate?
A counter offer in real estate most commonly occurs when the seller wants to make changes on the buyer’s offer to better fit their goals. In other words, the seller makes a return offer in response to the buyer’s original bid. Counter offers are typically handled between real estate agents and are time-sensitive.
A counter offer is one of three responses a seller can give to a potential bid — the other two are to accept the buyer’s initial offer or reject it outright. The point of a counter offer is to negotiate the best terms and best price for both parties.
How to make a counter offer
There are several strategies to making an offer that will land you in your buying or selling sweet spot. Here are a few:
The seller or buyer can negotiate the price
If a buyer makes an offer below the list price, the seller may choose to reject, accept or simply let the offer expire. If there are multiple offers, the listing real estate agent will lay out the options for their client and then notify all buyers’ agents of the choices.
The seller or buyer can negotiate the closing date
Sellers may counter a buyer’s proposed closing date. For instance, a seller may want more time to move or close faster due to financial reasons. Or, buyers may want to push back on the closing date if they experience delays in their mortgage closing.
The buyer or seller can negotiate based on the home’s condition
If the buyer is concerned about the home inspection results, they may put in a counter offer for repairs or ask for a drop in the sales price to accommodate for the necessary repairs. Or, the seller could counter the buyer’s offer asking them to waive the inspection contingency.
The buyer or seller can negotiate on the appraisal
If an appraisal comes in below the agreed-upon sale price, it will affect the amount the mortgage company will lend the buyer. It could mean the buyer may want to negotiate the price based on affordability or extend the closing date to find the finances needed in addition to the mortgage.
Should I make a counteroffer?
When it comes to deciding whether to make a counteroffer, knowledge is power. That means learning as much as you can about the seller or buyer. Your agent can also learn about the other agent on your behalf.
This knowledge will help you better understand what you need to do to negotiate strategically. It also helps to understand housing market conditions. For example, if it’s a seller’s market, buyers don’t necessarily have as much power to make a counter offer, and vice versa.
Here are some examples of when and why you may want to make a counter offer:
- Sometimes sellers use the pending sale of their home to finance another. If so, they may want to close faster and are more eager to accept an offer. This won’t necessarily be the case in a seller’s market, however — buyers could be at a disadvantage, especially if they’ve already terminated a lease and are more willing to negotiate in order to move into a new home quickly.
- Selling a home with known issues might put a seller at a disadvantage during negotiations. For instance, a leaky roof may not be discovered until after a buyer orders a home inspection. A buyer may ask the seller to fix the roof or deduct the cost of a new roof from the sales price. A seller could reject the counter offer and hope the next buyer doesn’t care about paying for repairs.
Tips for responding to a counter offer in real estate transactions
If you’ve received a counter offer as a buyer or a seller, here are some best practices on how to respond.
Carefully review the counter offer
When reviewing a counter offer, it’s important to read everything carefully before you sign. It’s also important to have an experienced real estate agent who can review your counter offer with you and work with you to capitalize on your advantages in a negotiation. Your agent can help answer any questions you may have. For more complicated issues, you can always reach out to a real estate attorney for assistance. Both sellers and buyers can then think about their next steps, whether that’s accepting, rejecting or making another counter offer.
Consider whether you’re comfortable with the contingencies
If, in the counter offer, the sale price remains the same, but the buyer or seller has countered with a contingency, make sure you understand exactly what that entails. For instance, if the seller wants the buyer to waive the inspection contingency, the buyer is on the hook for any repairs or defects in the property after closing. Doing so could mean costly repairs, but it could be worth the risk if it’s a seller’s market and the competition is fierce. Sometimes, sellers will request buyers to write in a limit on the dollar amount for repair requests in their offer as part of their counter.
Consider appraisal and inspection results
If you made an offer above the list price, there is always the possibility of an appraisal coming in low. In this case, it’s important to plan for how you plan on responding — will you counter for a lower price on the home, or as the seller, consider bids from other buyers?
Home inspection results are also important, as they could signal costly repairs for either the buyer (after closing) or the seller. If you want the seller to make repairs or offer a credit, how much is within reason? Or if you’re the seller, how much are you willing to pay before moving on to another buyer?
Establish a baseline for when you’ll walk away
Whether you’re selling or buying a home, establish a baseline for when you will walk away from a sale. As a buyer, you don’t want to spend so much on a home with no cash available for improvements and repairs. And as a seller, you should know how much you want to make off the sale.
With a measured and informed approach, counter offers can be your friend. Communicate often with your agent to let them know what you want from the sale, and never be afraid to walk away if things go south.