What does it mean to make a counter-offer on a house?

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A counter-offer is a form of negotiation during a real estate transaction. It comes in response to an earlier offer to buy a home: Typically, the seller responds to a prospective buyer’s bid on the home with a higher price and/or different terms. The buyer is free to accept, reject or make another counter-offer. Here’s what to know about this common negotiating tactic, and how it applies to buying and selling property.

What is a counter-offer in real estate?

Here’s an example of how counter-offers might work in the real world. Let’s say a buyer wants to make an offer on a house, but they think it’s a bit overpriced so they want to offer less than the list price — say, $400,000 on a home that’s asking $420,000. The seller, rather than accepting or outright rejecting this offer, can make a counter-offer at a slightly higher price — say, $410,000. It’s a bit like bargaining, or a conditional yes: The seller is not saying no, but is essentially saying, “OK, but I want more money.” In reply, the buyer can agree to the new terms, walk away or make another counter-offer — say, offering to meet in the middle at $405,000

As a buyer, whether or not you accept a counter-offer depends on your needs and desires. Before you accept, run the numbers: A higher purchase price can mean higher mortgage payments, higher closing costs and potentially even higher taxes. You don’t want to become house poor. Assessing your priorities, and your budget, is the best way to determine whether the newly proposed conditions are acceptable for you.

Pros and cons for sellers

The biggest pro of making a counter-offer for sellers is obvious: The potential to sell your home for more money.

That said, there are negatives as well. One is that you may end up wasting valuable time with negotiations that don’t go anywhere. Some buyers may simply not respond to your counter-offer.

In addition, if you spend too much time on negotiations and lengthy back-and-forth with one potential buyer, you may lose out on interest from other buyers. It’s usually a good idea to stipulate a deadline so that the process can’t drag out too long.

Finally, once a buyer has accepted a counter-offer, the seller generally can’t rescind it if a better offer comes along. The acceptance should be conditioned on a contract being entered into within a set number of days.

Seller tips: How to handle counter-offers

If a seller receives a counter-offer that they are still not happy with, there are three ways to respond:

• Reject: If you’re not interested in making a deal, you can reject the offer outright. At this point the buyer may or may not come back with an improved counter-offer.
• Accept with a contingency: If you want to accept but have specific concerns, you can accept with certain conditions, or contingencies, in place. Common real estate contingencies can be based around the title, financing, closing date and more. Make sure the language in a contingency is crystal-clear so there can be no misunderstandings.
• Counter back: If you’d like to accept the offer but want a few more details — or a few more bucks — thrown in, you can propose another counter-offer. This can include a higher price or other terms, such as a specific closing date or move-out timeline. Be sure to consult carefully with your agent before deciding on a counter-offer to make sure it’s reasonable and won’t drive the buyer away.

Pros and cons for buyers

Homebuyers are generally on the receiving end of counter-offers: You bid on a house and the seller either accepts, rejects or counters. The major benefit of a counter-offer for buyers is the potential to secure the home for less money and on better terms.

However, if you really want the house, it’s not a great idea to go back and forth too many times with counter-offers. Sellers can quickly tire of this — and the more time the process takes, the more time you leave open for a better offer to come along. Plus, it may leave the seller with the sense that you are difficult to deal with, assuming that there will be more trouble down the road that they’d just as soon forgo.

If you’ve reached your spending limit, indicate that your counter-offer is your “best and final” offer, with a time limit for acceptance. This makes your position very clear to the seller.

Buyer tips: How to make counter-offers

When making a counter-offer as a buyer, it’s smart to know your limits in terms of how much you can really afford. While you may want to be flexible, maintain a firm position on the top amount you’re willing to pay. That will help you stay out of ever-escalating bidding wars with other buyers.

Before you respond to a seller’s counter-offer, re-check the home’s comps to make sure that the seller’s valuation of it is reasonable. If the seller’s asking price significantly exceeds their home’s fair market value, you have more negotiating power to ask for a lower price. But be quick about it — counter-offers often come with a strict deadline.

Keep in mind that if you go too high, the appraisal of the home may come in lower than what you’re on the hook to pay. This is a problem for mortgage lenders, and as such, you may not qualify for as big of a loan as you need without putting down more cash.

What’s the real estate agent’s role?

The agent’s role in real estate counter-offers, whether representing the seller or the buyer, is to look out for their client’s best interests and help them navigate the process. Agents often advise in the decision of both parties whether to accept, counter or reject.

If a seller has received multiple offers, for example, the listing agent may advise extending the deadline by several days or more to see if additional interest or a bidding war materializes. An agent can also play a key role in tempering any negative feelings that may result from this bargaining process. No one wants to go to the closing table with ill will.