A Home Seller’s Guide to Negotiations & Counter Offers
You’ve employed a Realtor®, established a listing price for your home and put your house on the market. Several buyers have attended showings, and one or two have been highly complimentary about your home.
Sooner or later, you’re going to get a buyer that’s interested enough to make an offer. The problem is, when the offer arrives on your agent’s desk, it’s not entirely what you were expecting. Perhaps the price is too low, or the offer is so stuffed with contingencies you fear that you will never reach closing. Is this the end of the road?
In most cases, it’s actually just the beginning of a successful transaction. Negotiations and counter offers are a normal part of the home selling process. With a little to and fro, you can soon reach a deal you’re happy with. Here’s how you get there.
Receiving an offer
Before you can make a counteroffer, you need an offer. A buyer makes this by filling out a standard document called a residential purchase agreement. Don’t let the name confuse you. The pre-printed “contract” is not legally binding until both parties agree to its terms and sign the contract in evidence of this fact. Until you sign, the document is simply an offer.
A buyer’s offer is their opening gambit. Using the standard document, the buyer inserts all the terms they would like to include in the deal, such as:
- the price
- the down payment
- who pays closing costs
- any contingencies, such as a finance contingency if the buyer needs mortgage finance to proceed with the deal, or a condition that the buyer sells their current home before they buy this one.
If you like the offer, you can accept it by signing the offer document. At this point, the offer turns into a binding purchase agreement. Neither you nor the buyer can back out of the deal unless the contract allows you to do this, for example, if the buyer’s home inspection throws up material repairs that the buyer is not willing to take on.
In most cases, the original offer from the buyer is not acceptable. You now have two choices: reject the offer outright or make adjustments to it. This is known as a making a counter offer.
Making a counteroffer
Like an offer, the seller’s counter offer is made on a pre-printed documented called, plainly, a counter offer. This is your opportunity to change any of the terms suggested by the buyer and to write in your own terms. For example, you might:
- raise the offer price
- request a higher earnest money deposit
- delete some of the personal property the buyer is asking you to sell with the home
- bring forward the date by which the buyer has to satisfy acceptable contingencies, for example, by insisting the buyer approves a home inspection within 10 days of the offer being accepted.
To be binding, you must sign the counter offer and deliver it to the buyer or the buyer’s agent. Once you do this:
- Legally, you have REJECTED the buyer’s original offer. Think carefully before filing a counter offer as it cancels the buyer’s original offer. You cannot later go back and accept the original offer if you change your mind.
- Your counter offer is a NEW OFFER. This puts the ball back in the buyer’s court.
- Counter offers always contain an expiration date, for example, 5pm on the third day after the counter offer is signed. You can set the counter offer to expire within one hour if you wish though it’s recommended that you give the buyer a reasonable amount of time to consider the terms you are proposing.
If the buyer does not respond by the expiration date, the counter offer expires. You have now fallen out of negotiations with that particular buyer. Those negotiations can only be reactivated by the buyer submitting a fresh offer.
What the buyer does next
When he receives a counter offer, the buyer has three choices:
- Accept the offer. The buyer does this by signing the counter offer before the expiration date and delivering the signed offer to you or your real estate agent.
- Reject the offer. The buyer can discard your counter offer and take no further action. At this point, the deal is off the table and can only be reactivated by the buyer making a fresh offer.
- Counter the counter offer. The buyer can make a second counter-offer, or even a third or a fourth, until you reach a deal. Thankfully, multiple counter offers are rare. Most well-advised buyers and sellers reach agreement after one or two rounds of negotiation.
When you should counter offer, and when you should not
Counter offers are where the rubber meets the road of the value you get from your real estate agent. They handle offers and counter offers day in, day out and will have a good handle on whether a buyer’s offer is good enough as it stands.
Multiple factors come into play here. Obviously you have a price expectation, and your real estate agent will do his best to meet that expectation. If the offer is clearly unreasonable, your real estate agent invariably will advise you to submit a counter offer.
However, if you are selling your home in a buyer’s market, the buyer may have his pick of suitable homes in your area. Making a counter offer — even one that seems reasonable — may drive the buyer towards the second home on his list, and you may end up with no deal.
Conversely, in a seller’s market with a shortage of suitable homes for sale, the buyer may be prepared to hang in through two or three rounds of counter offers to secure their dream home. In this scenario, you can probably afford to push for your perfect deal.
A second factor your real estate agent will investigate is the buyer’s motivation. If the offer is unacceptable and you need to counter, what type of counter offer will best hit the buyer’s buttons? A counter offer that raises the price, or one that keep the price lower but reduces the closing costs paid by the seller? The net dollar price of the two counter offers may be the same, but the buyer may find one deal more palatable than the other.
The best advice is, listen to your Realtor® and tread lightly. If you can live with most of the items in the offer, it’s probably better to take it. After all, having a willing and able buyer under contract is worth far more than having a home sitting on the market waiting for the perfect offer to come along.
Thinking of selling your house? Let’s start a conversation even if it’s early. We have expert listing agents happy to discuss your plans. Feel free to use our free, comprehensive Home Value Estimator and take a look at what your home may sell for today.
And call us at 805.379.3300!