What Is a Counteroffer?

A counteroffer is a response given to an initial offer. A counteroffer means the original offer was rejected and replaced with another one. The counteroffer gives the original offerer three options: accept the counteroffer, reject it, or make another offer.

There is typically no binding contract between the parties involved until one accepts the other's offer. Counteroffers are prevalent in many types of business negotiations, transactions, and private deals between two individuals. You may find them in real estate deals, employment negotiations, and car sales.

Understanding Counteroffers

When two parties get together to negotiate a transaction or business deal, one may put an offer on the table. A counteroffer is a reply to that original offer and may change the terms of the deal including the price. The price may be greater or less than what was originally quoted depending on who makes it. So if the person receiving the original offer doesn't accept or reject it, he may decide to renegotiate with a counteroffer.

Here's an example. Ms. X decides to put her house on the market for $300,000. Mr. Y views it and makes an offer of $285,000 instead. Ms. X decides to make a counteroffer of $295,000 instead, thus putting the onus on Mr. Y to accept, reject, or counter that offer and continue negotiations again.

There is no limit to the number of times each party can counter during negotiations. When countering back and forth, each offer should present a price less than the previous offer. This conveys to the seller that the buyer is nearing his final offer.

Neither party is obligated to settle until they agree on a contract, which occurs once the counteroffer is accepted. This is when a binding contract is formed. The contract is enforceable against either party. The counteroffer voids a previous offer, and the entity that presented that offer is no longer legally responsible for it.

[Important: When negotiating, never let emotions affect negotiations—instead, ask questions, do your research, and ask for additional time to consider the new offer.]

Terms of the Counteroffer

A counteroffer may include explanations of the terms of the offer or requests for supplementary information. Finalizing counteroffer negotiations requires the buyer and offeror to accept the terms without any additional conditions or modifications.

A counteroffer is generally conditional. When the seller receives a low offer, he can counter with a price he feels is reasonable. The buyer can either accept that offer or counter again. The seller can counter the offer. The person receiving the counteroffer does not have to accept it.

For example, a seller wants to sell a vehicle for $20,000. A buyer arrives and offers $15,000 for the vehicle. The offeror provides a counteroffer, asking for $16,000 with the objective of obtaining a higher price. If the offeree declines, the offeror cannot force the buyer to purchase the vehicle at $15,000, even though the buyer suggested that price.

Key Takeaways

  • A counteroffer is the response given to an offer, meaning the original offer was rejected and replaced with another one.
  • Counteroffers give the original offerer three options: accept it, reject it, or make another offer and continue negotiations.
  • Parties are not obligated by a contract until one accepts the other's offer.
  • Counteroffers are common in business negotiations and transactions, such as real estate deals, car sales, and employment contracts.