Offers and Counter-Offers: Law and Strategy
Sometimes, when making offers for real property, a Seller will send back an offer with something changed, often literally, in the sense that they send back the offer you previously provided, but with certain parts of it crossed out and some new things written in. This is a counter offer, and there are some things you need to know about them, both in terms of what the law of contracts says about them, and how to approach them as a part of negotiation strategy.
Basics of a Counter Offer
A counter offer is essentially any offer made in reply to an earlier offer. From a contract law point of view, making a counter offer is an explicit rejection of the previous offer, meaning once you make a counter you cannot accept the previous offer and bind the other side into a contract. This is a subtle but important point of contract law. Let’s say you make an offer for a house at $1M, and the Seller comes back and says he wants $1.1M. If you say you will not pay $1.1M the Seller cannot then simply say ‘Then I accept your earlier offer for $1M.’ and create a binding contract. He can offer to sell for $1M, and you can accept it, which you may well do, but he cannot force you to contract to buy the house for $1M. You may have, since he made the counter and you were unwilling to accept it, made an offer on a different property. It is important to at all times know what offers you have made, and what have been made to you, to make certain you do not end up in more agreements than you can satisfy.
When a counter offer comes from a Realtor, typically the format is that the Realtor will just cross out something on your offer and write in something else. The price is the most common, where a line will go through it and a new price will be written somewhere nearby. This is actually a very lazy way of doing this, and leads to a very messy document if there is any back and forth, but it is the standard practise. Really they should provide a whole new offer to sell (though you will encounter some Realtors who think that offers can only come from buyers; they actually think that someone cannot make an offer to sell something, a position so contrary to law it is difficult to describe how baffling it is), and in this their practise of simply sending back offers with amendments is generally helpful for those using ZVR, because it leaves all the contractual terms in Schedule A which protect the Buyer intact.
When the counter offer comes in, there will be several elements of it you need to consider. First, the price is usually one of the things which is changed, so consider that. Second, the timing. The offer is only open for acceptance for a limited period, so you need to immediately take note of how long you have to consider it. Finally, if they have struck or amended any of the other clauses in the contract, such as the clauses in Schedule A. You may want to consider having a conversation with your lawyer if any of the Schedule A clauses were struck or changed, unless you are very confident you know what those clauses do and to what risks you are exposed by their amendment or removal.
Offer and Counter Offer Strategy
Many transactions will not involve counter offers. If there are multiple offers on a property Realtors will urge the Seller to simply pick one and have an agreement, because this minimises the amount of work for the Realtor and maximises the changes of him earning a commission. Counter offers will typically only come in when there are few, or even just one, offer, and there is something about it which the other side wants changed. Most commonly the Seller simply wants more money. It is up to you to be the judge of both your financial comfort in accepting an offer to sell for a higher price, and the situation between yourself and the Seller, and if you believe you can simply reject offers to sell for a higher price because you believe the Seller will ultimately agree to your original offer price. Each situation is different, both in the circumstance of the Buyer and that of the Seller.
Once you see a counter offer you know that the Seller is willing to negotiate with you on the deal, and most likely there either is no other potential buyer for the property at present, or your offer was the best of what offers were submitted. This means that you have a measure of commercial leverage, but how you behave is based on your own objectives and financial situation. You should make sure to keep your situation unknown to the Seller, unless telling them something serves your interest. For example, if you have received a counter offer asking for more money, and your original offer was already everything you could afford and all the bank will lend you, telling them you’ve given your best offer and they’ll not get a better one is a perfectly legitimate response. Since it is true, whether they think you are simply holding out for a lower price or actually can’t afford more, you can’t afford more, so either the Seller will agree to your offer, or there will be no deal.
Conversely, even if you can afford more you simply don’t want to pay more for a particular property because you do not believe it is worth any more than your offer, or that the Seller is under enough pressure that he will accept your offer, you can follow that course. Your willingness to risk not getting an agreement to buy a property is entirely an exercise of your own discretion.
There are some useful tips if you are engaged in a genuine back and forth negotiation over a property. The first is that if you receive a counter you are willing to accept, but want to see if you can get it for less, do not send a counter of your own right away, but instead engage in some verbal negotiation. Since a counter offer from you would negate the previous offer, if you still want to be able to accept the last one, do not make a new counter. Second: get information. You can go to onland.ca and pull the title register for the property, and with that you will be able to find the mortgage instrument registered on the property, if any. Knowing how much the Seller owes, and being able to calculate roughly how much he pays per month (especially if you can see that the mortgage is variable with interest rates rising) can tell you that the Seller needs to sell soon, which means if you have time on your side you may be able to exert pressure for a lower price by threatening to walk away. Lastly, Realtors can often be used against their own clients. They are often so desperate to close a deal (the average Ontario Realtor only closes 2-3 deals per year) that they will betray their client’s position to you in the hope that you will make an offer and they can get their client to accept it, by telling you things like that their client still has ‘room to move’ on price. If you hear that, you immediately know that your offer should be less than whatever it was last time.
