How Real Estate Counter Offers Work

When you're buying or selling a home, you may need to make or receive a real estate counter offer. Here's what to do if you make an offer on a house and receive a counter offer in return.

What is a real estate counter offer?

A real estate counter offer is an offer that's made in response to an initial offer. It usually happens when someone isn't happy with the terms of an initial offer.

A buyer looking to purchase a home might make a real estate counter offer hoping to pay less than the home's listing price. A seller might make a counter offer if a buyer offers much less than the listing price.

When do I make a real estate counter offer?

There are several scenarios that may call for making a counter offer on a real estate transaction.

As a seller

As a seller, you might make a counter offer when a buyer presents an offer that doesn't work for you, but you're still interested in potentially signing a contract with that buyer. Say you list your home for an asking price of $300,000, and a buyer brings you a purchase offer of $275,000. You could just reject that buyer's offer and seek a better offer from someone else. Or you may decide on a little negotiation.

If that's the case, you can present a counter offer -- say, $285,000. At that point, the buyer may agree to that price, or the buyer may make a counter offer again.

As a buyer

As a buyer, you might make a counter offer when you really want to buy a home, but its sale price is out of reach or you don't think it's worth what it's listed for. Going back to our example, say a seller wants $300,000 for a home you think is worth $275,000. You could offer $275,000, and if the seller comes back with $285,000, you might counter with $280,000.

A buyer counter offer may also come into play if a home inspection reveals issues with a property. Say you agreed to pay the $300,000 sale price your seller asked, but a home inspection reveals issues that will cost you a lot. You could ask the seller to knock the price of the home down to $280,000 if you think those issues will cost $20,000 to fix. The seller might come back with a $290,000 counter offer, and you might come back with yet another counter offer of $285,000 to keep the deal alive.

How many counter offers are normal?

When it comes to counter offers in real estate, there's no set number that constitutes the norm. A buyer and seller could go back and forth with one or many. But in most cases, there are only so many counter offers a potential buyer and seller will make before a real estate transaction just falls through.

Here's how a hypothetical series of counter offers might play out:

1. A seller lists a home for $300,000.
2. A potential buyer makes a counteroffer for $275,000.
3. The seller doesn't like that lowball offer, and counters with $290,000.
4. The buyer submits a counter offer of $280,000.
5. The seller presents a counter offer of $285,000.
6. The buyer agrees to that compromise, and both parties move forward with the purchase contract.

One thing to keep in mind is that real estate offers -- including initial offers and counter offers -- typically have time limits. Whether you're a buyer or a seller, you can't just sit on a counter offer. You need to respond quickly.

What happens when a real estate counter offer is accepted?

When a counter offer is accepted in a real estate deal, the buyer and the seller sign a contract spelling out the terms both parties have agreed to. For example, if a home is listed for $300,000, but after a series of counter offers, both parties agree to a sale price of $285,000, that's the number in the contract.

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.

Still have questions?

Here are some other questions we've answered:

• How to Make an Offer on a House
• Can You Back Out of a Home Purchase Agreement?
• How to Apply for a Mortgage