Content of the material
- #1 Act Fast – Like, Now
- 1. Negotiate with the market in mind
- When should you accept a counter offer?
- What Should a Seller Prioritize?
- What is a counter offer in real estate?
- #7 Pick Up the Cost of the Home Warranty
- What can a counter offer counter?
- Earnest Money
- The Closing Costs
- The Closing Date
- Countering the Counteroffer
- What If My Counter Offer Is Rejected?
- What happens when a real estate counter offer is rejected?
- How do I write a good counteroffer?
- Related Resources
- Should You Make A Backup Offer On A Home?
- What Happens If You Made An Offer On A House But Received No Response?
- What Are Seller Concessions?
- Can a seller accept another offer during counter offer negotiations?
- Which Negotiation Tactics Are Most Useful?
- Discover your next homewith confidence
#1 Act Fast – Like, Now
When you receive a counteroffer, you should respond quickly — ideally within 24 hours. The longer you wait, the more space you leave for another buyer to swoop in and nab the property. Also? If a seller senses hesitation, they may decide to withdraw their counteroffer before you even have a chance to respond.
1. Negotiate with the market in mind
The state of the real estate market will determine who has the upper hand during negotiations.
The current housing markets in Toronto and Vancouver are ever-changing, meaning it may not clearly be a buyer’s or seller’s market right now. Both regions experienced strong seller’s markets over the last several years, though that is currently shifting to a more balanced market.
Why so much fluctuation? The Bank of Canada (BoC) has raised interest rates several times already in 2022, and more rate hikes are expected as the year progresses.
Mortgage rates, both fixed and variable, are all based on the BoC’s base rate. This means that qualifying for mortgages becomes more challenging as interest rates rise—which may price buyers out of the market. And, fewer buyers means less competing offers on for-sale properties.
Since the BoC rates are changing rapidly, you should consider all the market factors at play before making your next move.
Related Article: Should I Still Move?
When should you accept a counter offer?
If the seller issues the offer, the buyer can accept the counter offer. You should be ready to move quickly in this situation because counter offers expire, just like purchase offers. A seller cannot accept another offer until they reject a counter offer or the buyer doesn’t accept their counter offer. They cannot just take a new outside offer that seems better during the negotiation process.
As you review the offer, remember that there are several factors besides offer price that could be undesirable, such as contingencies, closing cost splits, or an extended (or shortened) timeline. When making a counter offer, never let emotions affect negotiations, even if you're the buyer and this is your dream home. Now is the time to be bold. Ask questions, research, and take additional time to review the new offer.
Say a house listed at $200,000. A buyer comes along and offers $180,000. The seller provides a counter offer of $190,000 with a deadline in three days. The buyer accepts with a home inspection and financing contingency. Then, the sale moves forward.
What Should a Seller Prioritize?
Before you start negotiating, you’ll want to know what you’re hoping get from the buyer. Obviously, money is important. But it’s not everything. There are other factors to consider when crafting a counteroffer, particularly timing.
So, sit down with your agent and have an open discussion about your goals. Do you want more money? A faster closing period? Fewer contingencies? When you review these types of questions with your agent before you respond to an offer, and have a crystal-clear sense of your priorities, the negotiation process will go a lot more smoothly.
Related Topic: Sell a Home: Step-by-Step
What is a counter offer in real estate?
A counter offer is an offer given in response to a proposal that implies a rejection of the original offer. It turns the tables — now it is the original party who now has three options. The seller faced with a counter offer can 1) accept it, 2) issue another counterproposal, or 3) reject it. It is important to note that no one can create a binding contract until one party agrees with the other’s offer.
#7 Pick Up the Cost of the Home Warranty
Sometimes sellers offer prospective buyers a home warranty. This is a plan that covers the cost of repairing major home appliances and systems, like the air conditioner or hot water heater if they break down within a certain period (typically a year after closing).
A basic home warranty costs about $300 to $600 a year, according to Angie’s List. If it seems like waiving the home warranty can sweeten negotiations, but you still want the peace of mind of having one, tell the seller they don’t need to cover it — then buy it yourself.
Just keep in mind, whether you or the seller buy the warranty, you’ll need to pay the service fee (typically between $50 and $100) if something does, indeed, need to be repaired while under warranty.
Also, FYI: A home warranty is entirely separate from homeowners’ insurance. Homeowners insurance — the security blanket that covers your home’s structure and possessions in the event of a fire, storm, flood, or other accident — is required if you take out a mortgage. It can cost anywhere from $300 to $1,000 per year.
What can a counter offer counter?
Although a majority of counter offers focus on changing the listed price to a more favorable one for both parties, sometimes, they may also contest:
Earnest money proves the buyer’s commitment and interest in a particular property. The larger the earnest deposit, the lower the chances of the sale falling through.
That said, the seller may accept the buyer’s counter offer, but counter it proposing a larger earnest money deposit. In our example above, the seller may accept the $230,000 offer, but counter it proposing a larger earnest money deposit.
This often happens when the house has been on the market for long, and the seller wants to eliminate the chances of another offer falling through.
The Closing Costs
A home buyer may accept a seller’s offer, but counter it by requesting the seller to cover part of the closing costs.
In the instance mentioned earlier, say the seller counter’s the buyer’s offer by changing the sale price to $240,000, the buyer may accept it, but counter it again by requesting the seller to cover origination and record filing fees. This strategy mostly works in a buyer’s market.
The Closing Date
Both parties may agree on the price, but the seller may need more time to exit the property. In such a scenario, they may counter the closing date by proposing a longer escrow period. It’s up to the buyer to accept or reject the offer.
Countering the Counteroffer
Unless home sellers write something such as “final counteroffer” on their buyers’ purchase offers, buyers can counteroffer their sellers’ counteroffers. When homebuyers make counteroffers on their home sellers’ counteroffers, they should include their own drop dead date to give sellers some time to consider the new conditions. One to three days is the customary time limit for a buyer’s counteroffer. Home sellers and buyers, though, are free to ask their opposites for additional time to consider any counteroffers.
What If My Counter Offer Is Rejected?
If your counter offer is rejected, don’t give up just yet – you still have two options. You can either walk away from the deal or create a different counter offer. You’ll typically have 1 – 3 days to prepare and send the new counter offer, if that’s what you’d like to do.
Keep in mind that once you make a counter offer, the original offer (or, in some cases, the original counter offer) is off the table. If your counter offer is rejected, you usually cannot go back and accept the previous offer.
It’s important to collaborate with your real estate agent to improve your offer by tailoring it to the other party’s motivations or weighing your pros and cons. It’s through this process that you’ll determine whether you should look for a new home or a new buyer.
What happens when a real estate counter offer is rejected?
When a counter offer is rejected by a seller, the buyer can decide whether to agree to the seller's previous offer or walk away. For example, say a home is listed for $300,000 and a buyer offers $275,000. The seller might make a counter offer of $290,000, and the buyer might respond with $280,000. If the seller rejects that counter offer, the buyer generally can accept the price of $290,000 or move on.
It works the same way from a seller's standpoint. If a buyer rejects a counter offer, the seller can try to find another buyer willing to make a higher offer.
Whether you're buying a home or selling one, dealing with counter offers can be stressful. Your best bet is to approach the process with your own bottom line. As a seller, that means deciding ahead of time on the lowest price you'll accept for your home. As a buyer, that means deciding what's the most you can afford to pay.
Of course, if you're new to the world of homeownership, you may not know exactly how much house you can afford. But having that information is important in negotiating with a seller through whatever series of counter offers might unfold. Before you make an offer on a home, you should do a few things:
- Reach out to several mortgage lenders to see what rates you qualify for and how large a loan you can get pre-approved for.
- Use a mortgage calculator to see how high a mortgage payment you can afford. This can help you determine how much to offer a seller.
- Read this beginner's guide to home loans to learn more about the mortgage process.
Counter offers are often key to a real estate deal. Still, in some cases, a counter offer can kill a deal, so knowing how they work is important whether you're a buyer or a seller.
How do I write a good counteroffer?
Writing a strong counteroffer can be a matter of having provable, current data. You'll want information at your fingertips regarding what the other party is asking for. Are their cost estimates accurate? Be able to provide documentation to back up your position.
Viewing 1 – 3 of 3
Should You Make A Backup Offer On A Home? Home Buying – 5-minute read Kevin Graham – May 23, 2022 Home purchase transactions fall through for all sorts of reasons. Here’s how you can use a backup offer to better your chances of getting into the home of your dreams. Read More
What Happens If You Made An Offer On A House But Received No Response? Home Buying – 6-minute read Sam Hawrylack – June 25, 2022 Although uncommon, sellers are not legally obligated to respond to your offer. If you made an offer on a house and received no response, here’s what to do next. Read More
What Are Seller Concessions? Home Buying – 7-Minute Read Victoria Araj – June 21, 2022 Seller concessions can help reduce your closing costs, but is it a reasonable request? Learn when it’s a good idea to ask the seller to pay up. Read More
Can a seller accept another offer during counter offer negotiations?
The world of real estate is guided by contracts. A Realtor can accept another offer while the buyer is thinking about the counter offer. However, it comes down to the nature of the counter offer contract.
For instance, if the seller had sent the buyer an irrevocable counter offer giving them three days to accept or reject it, then they cannot accept another offer until the stipulated three days are over.
If the buyer signs and accepts the offer before this period is over, the seller cannot back out because they run the risk of being under contract to sell the property to two different buyers. Also, if they accept another offer after the counter offer has been signed and accepted, the first buyer has the right to:
- Put a lien on the home
- Sue the seller
- Coerce the seller into completing the sale
Note, the Realtor may even sue the seller if they try to back out from one offer to another since they will be missing out on potential commission from the sale.
However, there are several loopholes a seller may exploit to back out of a legally binding counter offer contract, so they can accept a better offer. These include:
- Buyer requested contingencies: if the buyer plans on selling their home first before purchasing the new one, the seller may have the right to terminate the contract if they get a better offer
- Missed deadlines: real estate home buying contracts feature a long string of deadlines for the buyer. If a buyer misses out on one of these deadlines, the seller can use this as a loophole to back out and accept a better deal from another buyer
Which Negotiation Tactics Are Most Useful?
The actual negotiation is the job of your agent, who will be experienced in real estate deal-making. That being said, you should still strategize with your agent before they make that counteroffer for you. Here are five ways you can nab a better deal:
- Avoid making an emotional decision. It’s easy to get caught up by the emotional bond you’ve formed with your home. The backyard just might be where you got married. And that cozy office could be where your small business was born. But the important thing to remember is this: You have to detach yourself from your home. This is business — nothing more.
- Know your bottom-line. Before moving forward, figure out what you need to get from the deal, at a minimum. That will give your agent a baseline when opening negotiations.
- Negotiate a “clean” offer. You want an offer with as few contingencies as possible, since contingencies give the buyer the opportunity to back out of the deal. But some contingencies — such as an appraisal, an inspection, or a financing contingency — can’t be waived by home buyers who are obtaining mortgages because they’re typically required by a mortgage lender in order to approve the loan. Still, if you have multiple offers to choose from, you may be able to persuade a buyer to waive certain contingencies, such as a radon contingency or termite inspection contingency.
- Offer a home warranty. In a buyers’ market, a low-cost way to make a deal more appealing to a buyer is to offer a home warranty — a plan that covers the cost of repairing home appliances and systems, like the air-conditioner or hot water heater, if they break down within a certain period of time (typically a year after closing). Home buyers love this extra security blanket, and the standard one-year basic home warranty will only set you back about $300 to $500.
- Don’t overlook the closing date. Typically, the sale process — from accepting an offer to closing — takes about 30 to 60 days (sometimes a little longer). But in most cases, the faster you can close the better. Especially if you need cash to buy your next home. A quicker closing period has to be feasible for the buyer, however, and some types of home loans take longer to obtain than others.
Discover your next homewith confidence
Real estate transactions involve a lot of back-and-forth. A house is a big ticket item, so expect to haggle over every detail before you reach a purchase decision. Knowing what a home is worth before entering the market is a great first step.
We’re here to help! Consult our Properly team so you can be as prepared as possible for whatever negotiations come your way.