A counteroffer is a rejection of the offer (or a previous counteroffer) to which it is a response. This is an important point for sellers to remember in this "normal" market in which we now find ourselves. Of course, it is an important point for buyers to remember as well.
Imagine the following scenario:
The Smiths have had their home on the market for about five months now. When the property first came on the market, both they and their agent agreed that the property stood a chance of fetching $625,000. It turned out that they were wrong. After the first couple of months of no buyer interest at all, they dropped the price to $610,000. Now it is it at $585,000, and they have yet to have what seemed even a serious offer. That is why they were pretty excited about the offer on the table Monday. The buyer had a good deposit; there was no for-sale contingency; the escrow period was agreeable; and the buyer already pre-approved for a loan. The only hitch was the price of $565,000. The offer gave them seven days to respond.
Actually, Mr. Smith confided with his agent, the $565,000 was a price they could live with -- they never had counted on being in the $600,000s. Still, though, they wanted as much as they could possibly get -- who wouldn't? -- so they made a written counter offer of $575,000. They gave the buyer two days to reply.
Not having heard back from the buyers by Thursday, the Smiths decided to accept the original offer. They provided a signed acceptance to the buyer's agent on Friday morning. To the Smith's dismay, the buyer's agent informed them that there would be no contract. The buyers had changed their minds.
Can they do that? Can they withdraw their offer after the Smiths gave them a signed acceptance? They sure can, in this situation. That is because, when the Smiths made a counteroffer, that took the original offer off the table.
A recent memo from the National Association of Realtors® (NAR) legal department emphasizes the point that, when one makes a counteroffer, that constitutes a rejection of the earlier offer. The NAR memo refers to a recent case, Theresa Polk v. BHRGU Avon Properties, in Florida's Second District Court of Appeal. There it was the buyer and not the seller who, having counteroffered, tried to "resuscitate" the original offer. Although the roles were thus reversed, and the facts quite different from our scenario, the point remains the same. In explaining how a counteroffer is a rejection, the Florida court quoted from the Restatement (Second) of Contracts: "The termination of the power of acceptance by a counter-offer merely carries out the usual understanding of bargainers that one proposal is dropped when another is taken under consideration … ."
To be sure, a counteroffer is not simply a rejection. It is also an offer. And, typically, it incorporates many of the elements of the original offer. This is generally made clear by a standard counteroffer form. Nonetheless, it is central to the concept of a counteroffer that it constitutes a rejection of the earlier offer.
The point for those who are "close," but still trying to squeeze a little bit more out of the negotiation? Remember, when you make a counter, you are rejecting what is in front of you. You should be sure that you want to do that.
