What Is a Counterbid?

A counterbid is a response to an offer or bid that is more favorable for one party than a previous bid. A bid is an offer made by a purchaser to a seller to buy an asset. During a bargaining process, it is not uncommon for each side to issue multiple counterbids as part of the negotiation. Either the purchaser or the seller may make counterbids to each other in the process of reaching a price that they can agree on, and that closely suits their goals.

Key Takeaways:

  • A counterbid is a response to an initial offer or bid.
  • Either the purchaser or the seller may make counterbids changing the other party's offer until they can reach an agreed price.
  • Counterbids may also come from a third party outside of the original parties involved in an offer.

Understanding a Counterbid

The term "counterbid" is often used when discussing the acquisition of a business. Counterbids may also come from a third party outside of the original parties involved in an offer. For example, suppose company A submits a bid to buy company B. In that case, company C can submit a counterbid with more favorable terms than that of company A's offer to company B. Company B can then choose to counterbid again, or to accept one of the offers,

During a sale negotiation, the purchaser makes an initial bid to buy an asset. If the seller does not approve of this initial bid, the seller will give the purchaser a counterbid, indicating a purchase price or terms that are more favorable than the purchaser's initial bid. The purchaser can choose to accept the seller's counterbid, or the purchaser can submit their own counterbid back to the seller at terms that were more favorable than their initial bid but less favorable than the seller's counterbid.

Negotiations may go back and forth in this manner until a final purchase price is agreed on between both parties.

Counterbids are common in property sales. Agents who are charged with negotiating a price for a property will typically have a threshold at which they will not negotiate further. Each party may continue to counterbid until they reach that threshold, at which point the deal is either sealed or abandoned.

Examples of a Counterbid

In July 2014, the discount retailer Dollar Tree (DLTR) made an offer to purchase competitor Family Dollar Stores. However, a third competitor, Dollar General (DG), made its own offer to Family Dollar shareholders in August 2014. Dollar General's offer for Family Dollar was a counterbid to Dollar Tree's original offer.

As another example, assume Aaron is selling his home. Susan makes a bid for Aaron's home that is $10,000 less than the asking price Aaron published. Aaron can go back to Susan with a counterbid that is $5,000 less than his original asking price. The terms of Aaron's counterbid are more favorable to him than the terms of Susan's first counterbid. Susan can choose to accept the counterbid or issue another counterbid back to Aaron.