A guide to how counteroffers work in real estate

A guide to how counteroffers work in real estate

Most people aren’t prepared for the wild and sometimes-bumpy ride of negotiating counteroffers in real estate, even though the experience is remarkably common.

Home sellers are free to make a counteroffer if they’re dissatisfied with a buyer’s initial bid. Usually, that counteroffer indicates they’ve accepted the buyer’s offer subject to certain changes, including updates to contingencies, closing date, and sales price.

Counteroffers are a fairly standard part of the home-buying process, but the rules of engagement might not seem remotely intuitive at the time. To help you understand how counteroffers in real estate work, what the typical negotiating steps look like, and how to counteroffer on real estate, SoFi offers a guide you can cram with.

Key Points

• Common reasons for counteroffers include changes to sales price, requesting a later closing date, changing the earnest money deposit, and removing certain contingencies.
• The number of counteroffers can vary and can ping-pong back and forth for weeks or longer depending on the market and circumstances.
• To negotiate effectively, buyers should have a comprehensive picture of costs, including closing costs, and be prepared to make a strong initial offer backed by market data.
• Negotiable items in a counteroffer include possession date, personal property, home warranty, and earnest money deposit.
• Being timely and responsive is crucial in the counteroffer process, as offers may come with expiration dates, typically ranging from 24 to 48 hours.

Common Reasons for Counteroffers

From the beginning of the home-buying process, unexpected twists and turns can arise. After sifting through hundreds of listings, attending several showings, and putting an offer in on a dream home (or two, or three), the deal can still be far from done.

There are many reasons why it takes time to buy a house, and counteroffers can certainly be one of them. Counteroffers in real estate can come into play in these scenarios:

A Change in Sales Price

One of the most commonly contested items during the purchase of a house is the sales price. If buyers come in with an offer lower than the asking price and sellers might counter with the original asking price (if they’re unwilling to negotiate) or somewhere between the asking price and the offer.

Requesting a Later Closing Date

Sometimes sellers simply need more time to vacate the premises. Whether they have unfinished business or unexpected plans, they may present a counteroffer that extends the escrow period to allow them more time to move out.

Increasing the Earnest Money Deposit

In some cases, the seller could up the ante by increasing the earnest, or “good faith,” money deposit the buyer submits with the offer. Earnest money deposits are typically between 1% and 3% of the purchase price, but in a hot market, there’s a chance the seller could ask for more to ensure the buyer is serious about purchasing the property.

The Removal of Certain Contingencies

Contingency clauses detail actions or conditions that must be met before a real estate contract becomes binding. If you’re a first-time homebuyer (or even if you aren’t) it’s wise to brush up on these terms. Common contingencies, which most sellers will see as standard in a real estate offer, are:

• An appraisal contingency to protect buyers if the property is valued at less than the amount they offer.
• A financing contingency that allows buyers adequate time to get a mortgage or other financing to purchase the property.
• An inspection contingency that ensures buyers have the right to a thorough inspection of the property within a specified period of time.

Some contingencies, however, are considered less than standard. For example, a home sale contingency grants buyers a set amount of time to sell their existing home so they can finance the new property. Some sellers may find this contingency burdensome, particularly in a hot market, so they could make a counteroffer that removes the home sale contingency. They can also counter with a “kick-out clause” that gives a real estate agent the right to keep showing the house while buyers attempt to sell their existing home.

Requesting Repairs

If a home inspection reveals that repairs or renovations to the property are needed, the buyer could submit a counteroffer to negotiate a lower price or ask the seller to complete the repairs before closing.

Deciding Who Covers Closing Costs

In a buyer’s market, it might be possible to negotiate the house price or to request that the seller pay some or all of the closing costs. These costs can include appraisal fees, settlement fees, title policies, recording fees, land surveys, and transfer tax. Many buyers are surprised by how expensive closing costs are, but in particularly hot markets with multiple offers, sellers can counter with a simple “no” to indicate they won’t be covering those costs for the buyer.

How Do Counteroffers Work in Real Estate?

While real estate counteroffers vary depending on the market, the seller’s unique circumstances, and other standalone factors, there are some fairly standard parameters to the counteroffer process:

What’s a ‘Normal’ Number of Counteroffers?

There’s no legal limit to the number of counteroffers in real estate transactions. Initial offers, counteroffers, and subsequent counteroffers could ping pong back and forth for weeks or more.

Knowing the local real estate market trends can be key here. In a buyer’s market with plenty of houses for sale, sellers might want to be cautious about submitting an unnecessary number of counter offers.

Similarly, in a seller’s market where inventory is low and buyer competition is high, buyers might want to limit the number of counteroffers they push back at the seller.

Can a Seller Make Simultaneous Counteroffers?

Depending on the state where the real estate transaction takes place, a seller may or may not be able to make counteroffers to more than one buyer. That said, most real estate agents advise against multiple simultaneous counteroffers, as it could end up in two legally binding contracts for the seller.

How Long Does the Process Take?

Number of counteroffers aside, homebuyers can expect a closing to take about 45 days, on average. But how long it takes still varies from buyer to buyer, with factors like whether they’re paying cash, how long it takes them to find an inspector, and if the house appraises at a lower value, affecting the overall timeline.

How to Counteroffer in Real Estate

To some degree, there’s such a thing as real estate counteroffer etiquette. Here are a few things to consider when engaging in the counteroffer process:

Have a Comprehensive Picture of Costs

For buyers, having an accurate handle on what it will cost to buy the house is essential for negotiating counteroffers discerningly.

Closing costs can be one of the most negotiated items between buyers and sellers and add up to as much as 5% of the mortgage amount. Having a firm grasp of how much to expect in closing costs can help guide the counteroffer process.

Setting realistic expectations for the monthly housing payment (including the mortgage principal and interest, insurance, maintenance, any homeowners association fees, and other costs) and what they can afford to pay as a lump sum at closing can help shape this picture for the buyer.

A mortgage calculator helps buyers break down the cost of purchasing a home. Understanding the various factors that might affect your home loan costs is important, too.

Go In With a Strong Offer

A “strong” offer is backed by data that defines what’s happening in the market and research (with the help of an agent) about what’s considered “fair market value.” Being preapproved for a home loan will make you an attractive candidate from the seller’s point of view.

Coming in at 15% or more under the fair market value is generally considered a “lowball” offer and can start buyers off on the wrong foot. In some cases, sellers might skip right over anything that isn’t considered a strong offer.

Know What Can Be Negotiated

One of the first steps in making a real estate counteroffer is knowing what can be negotiated:

• Possession date. Giving the sellers more time to move out could mean an exchange for a condition the buyer desires. Buyers hoping to move in sooner might make a counteroffer requesting an earlier possession date.
• Personal property. Some of the seller’s personal property – like furniture, window treatments, artwork, or gardening tools – could be negotiated into the contract in a counteroffer.
• Home warranty. Older houses can come with their own unique sets of systems and appliances, so buyers might make a counteroffer asking the sellers to cover the cost of a one- to two-year home warranty ($350 to $700 annually, on average) if unexpected repairs need to be made after move-in.
• Earnest money deposit. Whether buyers are trying to reduce their risk of something going wrong during closing or strengthen their offer, they can negotiate a lower or higher earnest money deposit with a counteroffer.

Be Timely and Responsive

Real estate offers and counteroffers often come with a set expiration date, so time is usually of the essence. Forty-eight hours is a standard acceptance window in many real estate markets, but in hot markets offers might expire within 24 hours or less.

Some sellers take this concept to a whole new level, setting stringent requirements around offer acceptance. It’s up to buyers to determine whether or not they’re willing to reply quickly enough to meet the sellers’ time demands or risk losing the deal.

Try Not to Take Things Personally

It might not feel like “all’s fair in buying and selling a home” since it’s one of the biggest financial transactions many will make in their lifetime. But buyers and sellers shouldn’t be surprised if it comes with a liberal amount of give-and-take.

And while it might seem like a personal affront to have a real estate offer rejected, it’s possible (and even likely) that the seller has multiple offers or was simply able to strike a better deal.

When push comes to shove and purchase comes to close, buying a house is a matter of business, no matter how personal the home-buying journey can feel.

The Takeaway

Real estate offers and counteroffers are a common form of business negotiation, and a first step in making a counteroffer is knowing what can be negotiated. Being cognizant of counteroffer etiquette can also be helpful.

FAQ

How do you handle counteroffers in real estate?

Counteroffers are an expected part of the negotiation process so approach any counteroffer calmly. Know your goal for the overall cost of your home purchase or sale, and what levers you can pull to get there, including a lower/higher price or a change in contingencies or closing timeline. Come back with your strongest counteroffer but always be prepared to walk away.

What are the steps in a counteroffer?

Understand the complete picture of costs involved in the transaction. Go in with your strongest counteroffer, in a timely fashion, and don’t take it personally if you don’t get 100 percent of what you want from the deal.

What is the general rule of counteroffers?

The number one rule of counteroffers, whether you’re buying or selling, is to know what total price you can ultimately afford. Keep calm and negotiate on, but don’t get emotionally involved — you may need to walk away at any time.

This story was produced by SoFi and reviewed and distributed by Stacker.