A counter-offer is a form of negotiation during a real estate transaction. The counter-offer comes in response to an earlier offer to buy a home. Typically, the seller responds to a prospective buyer’s bid on the home with a higher price and/or different terms. The buyer is free to accept, reject or make another counter-offer.

For example, a buyer might make an offer that is less than the listing price — say, $400,000 on a home whose asking price is $420,000. The seller, rather than accepting or outright rejecting the offer, can make a counter-offer at a slightly higher price — say, $410,000. It’s a bit like bargaining, or a conditional yes: The seller is essentially saying, “OK, I’ll sell you my house, but I want more money.” The buyer can agree to the new terms, walk away or make another counter-offer — say, meeting in the middle at $405,000.

As a buyer, whether or not you accept a counter-offer depends on your needs and desires. Before you accept, run the numbers: A higher purchase price will mean higher mortgage payments, closing costs and potentially even higher real estate taxes. You don’t want to become house poor. Assessing your priorities, and your budget, is the best way to determine whether the newly proposed conditions are acceptable for you.

Counter-offer pros and cons for sellers

The biggest pro of making a counter-offer, of course, is potentially selling your home for more money.

That said, there are negatives as well. One is that you may end up wasting time with negotiations that don’t go anywhere. Some buyers will simply make no response to your counter-offer. (This is more common in slow markets, not the heated real estate market we’re in today.)

In addition, if you spend too much time on negotiations and lengthy counter-offers with one potential buyer, you may also lose out on interest from other buyers. It’s usually a good idea to stipulate a deadline, so that the process can’t drag out too long.

Finally, once a buyer has accepted a counter-offer, the seller generally can’t rescind it if a better offer comes along. The acceptance should be conditioned on a contract being entered into within a set number of days.

Counter-offer pros and cons for buyers

Homebuyers are generally on the receiving end of counter-offers: You bid on a house and the seller either accepts, rejects or counters. The major benefit of a counter-offer for buyers is the potential to secure the home for less money and on better terms, always a good thing.

However, if you really want the house, it’s not a great idea to go back and forth too many times with counter-offers. Sellers can quickly tire of this — and the more time the process takes, the more time you leave open for a better offer to come along. Plus, it may leave the seller with the sense that you are difficult to deal with, assuming that there will be more trouble down the road that they’d just as soon forgo.

If you’ve reached your spending limit, indicate that your counter-offer is your “last and best” offer, with a time limit for acceptance. This makes your position very clear to the seller.

What’s a real estate agent’s role in the counter-offer?

The real estate agent’s role, whether representing the seller or the buyer, is to look out for their client’s best interests and help them navigate the process. Agents often advise in the decision of both parties whether to accept, counter or reject.

If a seller has received multiple offers, for example, the seller’s agent may advise extending the deadline by several days or more to see if additional interest or a bidding war materializes. An agent can also play a key role in keeping down any negative feelings that may result from this bargaining process. No party wants to go to the closing table with ill will.

How to handle offers when selling your home

If a seller receives an offer that they believe is too low, or otherwise not up to their expectations, there are three ways to respond:

  • Reject. If you’re unhappy with the offer and not interested in making a deal, you can reject the offer outright. (Just do it nicely — people talk.) At this point the buyer may or may or may not come back with an improved offer.
  • Accept with a contingency. If you want to accept the offer but you have specific concerns, you can accept with certain conditions, or contingencies, in place. Common real estate contingencies can be based around the title, financing, closing date and more. Make sure the language in a contingency is crystal-clear, so there can be no misunderstandings.
  • Make a counter-offer. If you’d like to accept the offer but want a few more details — or a few more bucks — thrown in, you can propose a counter-offer. This can include a higher price or other terms, such as closing date or move-out timeline. Be sure to consult carefully with your agent before deciding on a counter-offer, to make sure it’s reasonable and won’t drive the buyer away.

Tips for buyers making a counter-offer

When making a counter-offer as a buyer, it’s smart to know your limits. While you may want to be flexible, you should maintain a firm position on the top amount you’re willing to pay. That will help you stay out of bidding wars with other buyers.

Before you respond to a seller’s counter-offer, re-check the home’s comps to make sure that the seller’s valuation of it is reasonable. If the seller’s asking price significantly exceeds their home’s fair market value, you have more negotiating power to ask for a lower price. But be quick about it — counter-offers often come with a strict deadline.

And always keep in mind that if you overpay, the appraisal of the home may come in lower than what you paid. This is a problem for mortgage lenders, and as such, you may not qualify as big of a loan as you need without putting down more cash.