Form-of-the-Week:
Counteroffer, and Rejection of Offer — Forms 180 and 184
The seller’s objectives encounter a buyer’s offer
On submission of a buyer’s offer to purchase a property listed with a broker for sale, the seller, with the assistance and advice of the seller’s agent, either:
- accepts the offer on the terms submitted;
- responds with a counteroffer to the terms submitted [See RPI Form 180]; or
- rejects the offer without making a counteroffer, thus terminating further negotiations with the buyer submitting the offer. [See RPI Form 184]
The use of a counteroffer allows a seller’s agent and seller to take the reins of negotiations a prospective buyer has handed over when they submitted a purchase agreement offer. [See RPI Form 150]
For the seller’s agent, the counteroffer gives rise to the special duty to care for and protect the seller, which, includes:
- addressing property disclosures the seller needs to make to perfect negotiations before the seller enters into a purchase agreement with the prospective buyer;
- clarifying any uncertainties about the buyer’s financial ability to close escrow; and
- reviewing different terms or conditions sought by the seller from those offered by the buyer.
Further, a counteroffer allows the seller’s agent to eliminate contingency provisions in the buyer’s offer regarding disclosures. Also, the seller’s agent takes steps to establish the buyer’s qualifications for any purchase-assist financing requirements and the source of other funds needed by the buyer to close the transaction.
The environment surrounding the agent’s analysis of the buyer’s offer and review of the offer with their seller is nearly always within the control of the seller’s agent. The agent uses the opportunity to sort through the paperwork before the seller enters into a binding contract and fixes expectations by all participants about the terms of the agreement and condition of the property. A prompt, initial review of the buyer’s offer by the seller’s agent — alone and before meeting with the seller — is necessary for the agent to properly prepare for submitting, reviewing and advising the seller on the financial and legal consequences of accepting the offer. Typically, a seller’s first comments which the seller’s agent needs to be prepared to answer, focus on: Collaterally, the seller’s agent is primarily concerned with: The duty a seller’s agent owes to their seller on submission and review of a buyer’s purchase agreement offer includes: For example, an agent representing a prospective buyer submits a purchase agreement offer on the property without first requesting a copy of the marketing package from the seller’s agent for review with their buyer. Here, the buyer does not take into consideration any adverse property conditions disclosed in the marketing package when the buyer made their decision about the price and terms they are willing to pay to buy the property. To eliminate this asymmetry of property information, the seller’s agent advises the seller to counter the offer and include as addenda all the necessary disclosures. Due to the agent’s insistence when listing the property, the disclosures are already prepared and are available for the prospective buyer to approve in a counteroffer before both the seller and buyer enter into a purchase agreement. [See RPI Form 180]
A marketing package contains all the property disclosures the seller and seller’s agent are required to deliver to a prospective buyer at the earliest opportunity — either on request, and always before an unconditional acceptance of an offer or counteroffer. Related article: Further, pre-contract property disclosures eliminate most of the contingencies which affect the price, the amount of the seller’s transactional expenses or the buyer’s ability to cancel the purchase agreement. Several contractual procedures exist for a seller to respond to an unacceptable offer, especially an offer that needs only a few minor changes to be acceptable to the seller. For a response that includes numerous or major additions or changes in the terms of payment, performance of conditions (contingencies), due diligence procedures and closing activities, consider using a freshly prepared purchase agreement form for the seller to sign and submit, which of course is a counter to the original purchase agreement offer submitted by the buyer. [See RPI Form 150]
Minor changes to an offer regarding the selection of the title or escrow company, the documentation and deadline for loan approval, verification of down payment funds or the prerequisite of the purchase of other property each constitute a counteroffer for which a counteroffer form is best used. [See RPI Form 180]
The seller’s agent handling negotiations for a change in the terms of the buyer’s purchase offer needs to reduce the seller’s (counter) offer to a writing signed by the seller before it is submitted to the buyer. Without the seller’s signed counteroffer, the seller has not manifested their intent to be bound by their offer to sell. Here, the buyer needs a writing so they can accept and enter into a binding agreement, not an oral arrangement carried out by the transaction agents. The Counteroffer form published by Reality Publications, Ins. (RPI) has four sections, each with a separate purpose: The rules for preparing, submitting and accepting a counteroffer in a real estate sales transaction are the same rules applied to determine whether an offer made by a buyer has been submitted to the seller and an acceptance by the seller has occurred to form a binding agreement. Real estate agents instinctively consider submitting written offers from a buyer to a seller, rather than an oral offer, to comply with the rule requiring a written agreement that is signed by the buyer and seller to form a binding real estate agreement. Likewise, when the seller will not unconditionally accept all aspects of the buyer’s offer but is willing to commit themselves to different terms for a sale, their agent is faced with a counteroffer situation and needs to instinctively prepare and submit a written counteroffer for the buyer to accept or reject. On the buyer’s receipt of a seller’s counteroffer, the buyer might not accept the terms stated in the counter but still be willing to purchase the property on different terms — a counter to the counter. Here, the buyer’s agent also uses a counteroffer form to prepare the buyer’s new offer. Occasionally, the transaction agents first discuss what terms and conditions might be mutually acceptable before writing up the new counteroffer, otherwise this exchange of offers over minutia can go on forever. [See RPI Form 180]
The buyer’s counteroffer, by reference, includes all the terms and conditions of the seller’s counteroffer, which references and includes all the provisions in the buyer’s original offer. These referenced terms from the seller’s counter are then modified by entry on the counteroffer form of the buyer’s terms and conditions contrary to those sought by the seller. Alternatively, the buyer’s agent may prepare an entirely fresh offer on a purchase agreement form setting forth the terms agreeable to the buyer. Forms for entering into agreements — signing — are usually worded flexibly to merely reflect that the buyer and seller agree to the terms stated above. The wording eliminates concern over whether the buyer or seller is to first sign a purchase agreement or counteroffer form. Either may sign first, which makes it their offer for the other’s acceptance on the terms stated. When a counteroffer will not be forthcoming and negotiations are to be permanently terminated with a particular buyer, the seller’s agent uses the Rejection of Offer form published by RPI. The rejection form is used to state an intentional refusal to further deal with the person who made the offer submitted. This rejection procedure is needed when the property has been placed under contract with another buyer. [See RPI Form 184]
Also important is the use of the rejection form for the seller’s agent to confirm the rejected offer has been submitted to the seller, and in doing so avoids claims they failed to submit an offer to the seller for consideration. [See RPI Form 184]
The Rejection of Offer contains: After a rejection has been communicated, the offer rejected no longer exists and can no longer be accepted to form a binding agreement. [See RPI Form 184]
The article needs clarification. A counteroffer is a legal rejection of the initial offer with a proposed new offer. It has no binding effect on the would-be buyer unless accepted by the buyer. Importantly, the seller has given up the right to accept the buyer’s original offer.