How to Master the Art of the Counteroffer
Jacqueline Kyo Thomas
While many might think counteroffers are just tweaks to the price, they're much more than that. They give insight into what's important to both the buyer and the seller. Beyond the dollar amount, these offers often reveal their priorities, concerns, and how each party views the true worth of the property. Whether it's factoring in sentimental value, the potential of the home, or market perceptions, counteroffers are windows into the deeper motivations behind a negotiation.
And this is precisely why every real estate agent needs to understand and master the art of counteroffers. If you want to help your client win, and not be taken advantage of, you need to know why sellers and buyers make these offers. Spoiler alert: It's not just about price.
By understanding counteroffers, you can better advise your clients and make smarter deals. So, let’s get started with what you need to know to effectively handle counteroffers.
First of all, what is a counteroffer?
A counteroffer is a response given to an initial offer where one party suggests modifications to the terms. In essence, it's a rejection of the original offer accompanied by a new proposal that the responder is willing to accept.
Let's break it down with a simple example.
Let’s say your initial offer goes like this: Buyer A offers $450,000 to purchase a house.
The seller thinks this offer is way too low. Instead of accepting $450,000, they chose to respond with a new price of $470,000. This is a counteroffer.
Now, Buyer A has a few options:
Accept the counteroffer and pay $470,000. Reject the counteroffer and walk away. Make another counteroffer, suggesting $460,000.
Counteroffers are not limited to price alone. Counteroffers can also include conditions such as closing dates, repairs, or what fixtures and appliances remain in the home.
The primary goal of a counteroffer is to find a middle ground where both parties feel they're getting a fair deal.
It's tempting to think that sellers always jump at the highest offer, but sometimes there's more to the story. A seller may counteroffer due to financial, emotional, and/or practical reasons. Let's take a closer look at what may lead a seller to make a counteroffer.
Many sellers have deep emotional connections to their property, especially if it has been a long-term home. A seller might feel that an offer doesn't adequately compensate for the sentimental value of the home. This emotional and sentimental bond can cause them to perceive the value of their property as higher than what the market currently suggests.
Psychologically, people often fear losses more than they appreciate gains. A seller might counteroffer because they're afraid of "losing out" on the amount they could get. They don’t want to potentially sell at a price that they'll later regret.
It’s also important to note that properties are sometimes listed for more than they’re worth. Sellers sometimes list their homes at a higher price because they want to "test the waters" and see if there are any takers at that price point. They may also price higher to leave room for negotiations. Also, market conditions can fluctuate and homes that were initially listed as higher may sell for lower.
A listing price that’s higher than the market value can lead to counteroffers. The initial list price can serve as an anchor. Even if it's higher than the market value, the seller may feel they are "losing" if they accept anything below this anchor.
Sellers might have an inflated perception of their property's value due to improvements they've made. But, the harsh truth is that sometimes these changes don't significantly increase the home's market value. For example, converting garages into living spaces may be great for the current homeowner but not valuable to a buyer who wants a secure place to park their vehicles or store their items.
Friends, family, or neighbors might feed the seller's perception that their property is worth more than it currently is. Sometimes a seller can hear that it’s a “seller’s market” and think that their inflated price is justified.
If the seller has invested a lot into a property in terms of renovations or upgrades, they might feel like they’re taking a loss with a low offer. The seller may counteroffer in order to recoup their investment.
Some sellers believe that they should always counteroffer as a matter of principle. They might feel that the first offer is never the best one and that there's always room for negotiation.
Now that we understand why sellers counteroffer, let’s take a quick look at why buyers counteroffer when the ball’s in their court.
Buyers, just like sellers, have many reasons for presenting counteroffers. Here are the most common:
Most buyers have a set budget, and their initial offer or counteroffer is often influenced by their financial bottom line.
After evaluating the property, buyers might feel the listing price doesn't align with the home's actual value, especially when factoring in comparisons with other properties in the area.
If a home inspection reveals issues or potential future repairs, a buyer might counter with a lower price or ask for concessions to cover the cost of repairs.
Just like sellers, some buyers believe in always negotiating, regardless of the listed price.
Closing a deal in real estate is often like a tennis game, where both sides go back and forth, trying to get what they want. When you're representing a buyer, understanding the art of the counteroffer can be the key to securing their dream property. Let’s break down how to do counteroffers right.
Stay updated on the local real estate market. Use your knowledge of recent sales and market trends to confidently advise your clients in terms of counteroffer acceptance.
Timing is everything. Be swift with your counteroffers to maintain momentum, especially when the market's pace is unpredictable.
Clearly explain counteroffer terms to the seller's side to ensure understanding. Also, keep in mind that maintaining a good rapport with the listing agent can smooth the negotiation path. It's a team effort, after all.
Price is just a starting point. Be ready to negotiate terms like contingencies, inclusions, and closing dates.
A recent inspection on your side can help in justifying the counteroffer, particularly if there are concerns about potential repairs.
In a hot market, advise your clients on how to make their counteroffer stand out amidst multiple bids. This may include offering a more substantial earnest money deposit, limiting contingencies, including a heartfelt letter with the counteroffer, or offering to cover some of the costs traditionally paid by the seller,
Counsel your clients to keep their emotions at bay. But also, follow your own advice. Sometimes, you may feel competitive. Remember that your role is to keep the negotiation process objective and focused.
Against a high asking price, prepare a thorough Comparative Market Analysis (CMA). This can back up your counteroffer and showcase why it's fair.
Your duty is to your client. Through all negotiations, keep their best interests at the forefront.
Remember, being savvy with counteroffers is a badge of expertise for buyer's agents. By mastering the art of the counteroffer, you not only ensure smoother transactions but also build trust and confidence with your clients. This trust will bring them back to you in the future and also increase the likelihood that they’ll recommend your real estate services to others. Use the above tips to start improving your counteroffer skills. Good luck.