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San Carlos Real Estate News August 18, 2008

The FAQ’s on Counter Offers

by Chuck Gillooley

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Few elements of a real estate transaction are more confusing and widely misunderstood than the Counter Offer.   And it can be even more mystifying when you consider deals where the seller is countering more than one offer.    In reality, the concept of the Counter Offer is pretty straightforward, but its implementation in a real estate contract is where most of the confusion occurs.

Why is this important?  Regardless of whether the market is hot, cold or somewhere in between, the Counter Offer is the main tool when the two parties negotiate the terms of the contract.  Therefore it’s important to have a good understanding of what they’re about.  I put together some of the most frequently asked questions (FAQ’s) that I have encountered regarding Counter Offers, and outlined them below.  For the sake of this clarity, assume that you’re a buyer and you have just made an offer on a home.  Obviously, the answers here are relevant for both buyers and sellers.

negotiation.jpgFAQ #1:  We submitted an offer on a home, and the seller countered our offer.  Does that mean he can only deal with us now?

  • No.  The seller is free to entertain other offers while you are considering his counter.  In fact, the seller can accept another offer even while you’re mulling over his counter.  So if you sense there’s lots of interest in the house you’re bidding on, you probably need to make a decision sooner rather than later.

FAQ #2:  We received a counter-offer from the Seller, but we’re not going to accept it.  Are we still obligated to buy the house per the terms of our original offer?

  • No.  When a seller counters your offer, he is effectively canceling the original offer and re-submitting a new one.   If you decline his Counter Offer outright, you have essentially killed the contract.  Note that you can write a Counter Offer to his counter, which has the same effect — he is no longer obligated to sell the home to you per the terms of his counter offer….and so on, and so on.

FAQ #3:  Is there any limit to the number of times the buyer and seller can counter each other?

  • Nope.   I have heard stories of deals that had 12-14 counter-offers before the deal was settled.  I can’t imagine what in the world they were haggling over for that many rounds of negotiation!

FAQ #4:  We just signed the seller’s Counter Offer with no changes!  We’re now in contract, correct?

  • Not yetThe Counter Offer is not binding until the maker of the Counter Offer is “notified” of acceptance  (in this example it’s the seller or the seller’s agent, if that’s specified in the contract.)   This is a VERY important point!  In effect, the seller can still accept another offer right up until the moment that he receives your accepted Counter Offer, even if you technically signed it before he received the other offer.  In reality this happens rarely, but it’s still possible.  “Proof of Notification” is absolutely essential.  So, if you’ve signed the counter offer, any good agent knows that it’s best to immediately hand deliver it to the seller and get a signed acknowledgment of receipt.

FAQ #5:  The seller received multiple offer on his house.  Can he counter more than one of those offers?

  • Yes.  This is what is referred to as a Multiple Counter Offer.  Multiple counters are a bit more involved, and you’re more likely to encounter one in a hot market when a seller thinks he can leverage one interested offer off of another to garner some additional money.   They are also very risky, because for the reasons we discussed in Question #2, the seller can easily go from multiple buyers to none if they don’t bite on the counter offer.

FAQ #6:  Two counter offers were sent back to the buyers.  What happens if they both accept? Isn’t this like selling one house to two parties?

  • No, although that’s certainly what it seems like.   In this situation, the contract is not binding until the seller signs and acknowledges the winning offer.  So even if you sign the seller’s Counter Offer without any changes, the seller still has the right to reveiw and choose which offer he or she will go with.   This is clearly stated on the contract that is used for multiple counters.  So like we discussed in Question #4, it’s vital to get that acknowledgment and signature from the seller.  If you’re interested in finding out more about multiple counter offers, here’s a great article by Dian Hymer of Inman News:  The Pros and Cons of Multiple Counter Offers.

I hope these questions and answers help steer you through the sometimes tricky waters of Counter Offers.  Remember that the majority of real estate transactions involve at least one or more rounds of counter offers, so don’t be put off or intimidated by them.   Look at it as a tool for two interested parties to reach common ground in a very important transaction.
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