June 22nd 2022
The Counter Offer: How to negotiate a real estate deal
Whether it’s a buyer’s or seller’s market, real estate transactions often involve a series of negotiations, as well as several ‘moving’ pieces that could be easily overlooked.
As a first-time home buyer or sellers, it’s important that you’re equipped with all of the knowledge and tools you need to make the experience as smooth and surprise-free as possible.
Enter: our guide to negotiating! Let’s walk you through the negotiation process, and the key pieces you need to successfully navigate a real estate deal this year, and beyond:
- Negotiate with the market in mind
- Be prepared
- Be polite and respond in a timely manner
- Know when to walk away
- Work with an agent you trust
So, what is a counter offer in real estate?
Most successful real estate transactions are preceded by a series of negotiations. This negotiating process is often driven by what’s known as a counter offer.
A counter offer states that the seller or buyer has accepted the counter party’s offer—but only if one or more changes are made to its terms.
It’s common for a counter offer to stipulate changes to various contract items, such as:
- Home price
- Closing date
- Closing costs
- Marketing costs, and
- Contingencies: whether to include appraisal, inspection, etc.
How does making a counter offer on a house work?
After the counter offer is submitted, the buyer may come back with a counter offer to the seller’s counter offer. There’s no limit to these negotiations, so this back-and-forth continues until the sale terms are agreeable to both parties—otherwise, there’s no firm deal.
Counter offers are a standard part of any deal, but that doesn’t make them any less stressful to navigate.
Tips for making a counter offer
As a seller, most offers will have some element that you don’t agree with. Maybe the price isn’t as high as you expected, or the contingencies are too broad. As a buyer, know that the seller is most likely going to feel this way about some things in your offer.
Either way, it is unlikely you will both agree on everything. This is where the negotiation process comes in!
1. Negotiate with the market in mind
The state of the real estate market will determine who has the upper hand during negotiations.
The current housing markets in Toronto and Vancouver are ever-changing, meaning it may not clearly be a buyer’s or seller’s market right now. Both regions experienced strong seller’s markets over the last several years, though that is currently shifting to a more balanced market.
Related Article: Real estate right now: What one real estate expert is noticing in Toronto and Vancouver
Why so much fluctuation? The Bank of Canada (BoC) has raised interest rates several times already in 2022, and more rate hikes are expected as the year progresses.
Mortgage rates, both fixed and variable, are all based on the BoC’s base rate. This means that qualifying for mortgages becomes more challenging as interest rates rise—which may price buyers out of the market. And, fewer buyers means less competing offers on for-sale properties.
Since the BoC rates are changing rapidly, you should consider all the market factors at play before making your next move.
Related Article: Should I Still Move?
2. Be prepared
Having a strategy—and sticking to it—is hugely important for buyers and sellers alike.
If you’re buying, make sure you are pre-approved for a mortgage so financing is something you and the seller don’t have to negotiate.
Speak with your agent about the current real estate market, and have a realistic game plan for how you want to proceed. Knowing the fair market value of a property helps set a baseline for negotiations.
3. Be polite and respond in a timely manner
Although the housing market is becoming friendlier for buyers, that doesn’t mean you can simply name your price. Tread carefully around making a low-ball offer or counter offer. Low-balling can insult the seller and lead to an instant rejection of your offer.
Remember that sellers may be emotionally invested in their homes. While you should communicate your own wishes, just know that disagreements may crop up as a result. Always be respectful when rejecting terms or making your thoughts known.
Responding to a counter offer in a timely manner can have a bigger impact than you may think. Counter offers typically come with an expiration date, and having things settled quickly reduces stress for everyone involved.
4. Know when to walk away
Understanding that you won’t get everything you want is part of a real estate deal. Set realistic expectations and expect to make compromises in order to close.
That being said, sometimes you may have to walk away. If you can’t get on the same page about your deal-breakers, it may be time to move on. If it has been an extended negotiation, this can be challenging, but necessary.
As a seller, you must remember how much you want to make from the sale. As a buyer, you can’t afford to overspend. Establishing a hard minimum or maximum purchase amount will ensure you don’t come up short.
5. Work with an agent you trust
Your primary resource when negotiating a real estate deal is your real estate agent.
Use their experience to plan and execute smart counter offers that give you the advantage. How to best use your real estate agent will depend on whether you’re buying or selling.
Buyers should use their agent to glean information about the seller from the listing agent. For example, the buyer’s agent can ask:
- Are there any other offers on the table? If so, you’ll need to be quick with your offer. If not, you can slow the counter offer in an effort to drive a better closing price.
- Will the seller accept a quick closing? If the seller already has another house or needs to find one, you can use this information to gain an edge during closing.
- Has the buyer already received and rejected any offers? This gives you valuable insight into what the seller wants and can help you craft a winning purchase offer.
Sellers should use their listing agent to generate excitement and position their home as an object of interest. As a seller, your agent should help you to:
- Create a sense of urgency with buyers: Even if there’s no serious interest, your agent should make the buyers feel like now is the time to buy.
- Give a deadline: Your agent should always be closing the deal. For example, mentioning that there’s another showing in a couple of days creates a hard deadline for action.
To gain an edge during negotiations, use your Properly real estate agent to maneuver the expectations and gather information about the other party.
Discover your next home — with confidence
Real estate transactions involve a lot of back-and-forth. A house is a big ticket item, so expect to haggle over every detail before you reach a purchase decision. Knowing what a home is worth before entering the market is a great first step.
We're here to help! Consult our Properly team so you can be as prepared as possible for whatever negotiations come your way.