Form-of-the-Week: The Counteroffer, and Counteroffer Addendum — Forms 180 and 180-1

The seller responds to a buyer’s offer

Typically, a buyer submits a purchase agreement offer to a seller through their respective agents. The seller, on receipt of the offer, has two choices, either:

accept the buyers offer as stated in their purchase agreement; or
reject the offer as unacceptable.

The difficulty confronting a seller when responding to an unacceptable offer is how to proceed to negotiate changes, major or minor, when rejecting the buyer’s offer and close on a sale of the property.

Of course, the seller may simply reject the buyer’s offer without submitting a counteroffer based on terms the seller will agree to. But a rejection without further negotiation does not achieve the objective of employing a broker and their agent to locate a buyer when the buyer submitting the unacceptable offer is a bona-fide buyer capable of closing a transaction.

Any rejection by a seller of the terms of the buyer’s purchase offer made known to the buyer terminates the buyer’s offer. Thus, a buyer’s offer terminated by rejection cannot later be accepted much less enforced by the seller – it’s gone. The seller’s counteroffer constitutes a rejection and thus terminates the buyer’s offer.

However, the terms contained in the buyer’s offer may be made part of a counteroffer – an offer to sell – submitted to the buyer together with changes in terms the buyer may accept or reject.

The seller’s counter to a purchase offer

All too frequently a purchase offer submitted to a seller has numerous and major deficiencies to be cured before the seller agrees to sell.

With extensive changes to be made, sellers agents best simply just start over by using a fresh purchase agreement form to prepare and submit the counteroffer. When prepared, reviewed and acceptable to the seller, the purchase agreement is signed by the seller and agent and submitted to the buyers agent as the seller’s offer. Thus, the counteroffer is documented as an original purchase agreement offer without any reference to the rejected offer. [See RPI Form 150]

Major changes include:

changes in the price or terms of payment;
satisfaction of conditions (contingencies);
condition of property disclosures and due diligence procedures; and
closing activities and time of closing.

Minor changes needed for an offer to purchase to be acceptable to the seller are best documented by using a counteroffer form. Here, the terms of the buyer’s purchase agreement are made part of the seller’s counteroffer, subject to the changes noted in the counteroffer form. [See RPI Form 180]

Minor changes include:

previously undelivered documents disclosing property conditions;
the documentation and deadline for mortgage approval;
elimination of seller payment of buyers mortgage costs;
verification of down payment funds;
the selection of the title or escrow company;
the time for closing; or
the prerequisite purchase of other property.

Additional or modified provisions may be needed but are not boilerplate copy included in counteroffer forms. Counteroffer provisions changing the terms of a purchase agreement offer are entered on an addendum to be attached to the counteroffer form. [See RPI Form 180-1]

The sellers agent, confronted with a purchase agreement offer that is unacceptable based on a review with the seller, usually determines what terms the seller will agree to. When differences in terms are likely to be resolved by negotiations, sellers agents are prone to contact the buyers agent to discuss possibilities for eliminating differences before a counter offer is submitted.

However, handling negotiations for a change in the terms of the buyer’s purchase offer needs to be quickly reduced to a writing in a counteroffer, signed by the seller and submitted to the buyers agent.

Without the seller’s signed counteroffer, the seller has not manifested their intent to be bound by any terms of sale. The buyer needs a writing so they can accept and enter into a binding agreement – not oral arrangements bantered around by loosely operating transaction agents. [See RPI e-book Real Estate Practice, Chapter 40]

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Client Q&A: What to expect when making an offer?

The counter is an offer

On receiving an unacceptable purchase agreement offer, a counteroffer format takes on one of two types of documentation:

The use of a counteroffer form which incorporates all the terms and conditions contained in the offer submitted which are then modified by entering alternative or additional provisions on the counteroffer form [See RPI Form 180]; or
The use of a blank purchase agreement form to prepare an entirely new offer which is submitted as the counteroffer. [See RPI Form 150]

The rules for submitting a seller’s counteroffer in a real estate sales transaction and acceptance are the same rules applied to determine whether a buyer’s offer has been submitted 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 to comply with the rule requiring a written agreement, signed by the buyer and seller to form a real estate agreement. Likewise and for the same reasons, agents need to automatically submit written counteroffers from sellers to buyers when the seller will not accept all aspects of the buyer’s offer but is willing to commit to terms of a sale if the buyer will accept them.

For a further example, on the buyer’s receipt of a seller’s counteroffer, the buyer may be unwilling to accept the terms stated but be willing to submit a further offer on different terms — a counter to the counter.

Here, the buyers agent also uses a counteroffer form to prepare the buyer’s response – keeping negotiations alive. Occasionally, the transaction agents will discuss what arrangements will be mutually satisfactory before actually writing up counteroffers, otherwise this exchange of offers might go on too long and client motivation disappears.

Alternatively, it might be wise for the buyers agent to simply prepare an entirely fresh purchase agreement offer setting forth the terms agreeable to the buyer to add clarity to negotiations. [See RPI Form 150]

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Counteroffers to Promote Clarity

Defacing a signed document as a counteroffer

Sellers agents sometimes delete terms or provisions in a signed purchase agreement they have received by lining them out with a pen or digitally striking through them, called defacing. The agent then adds copy to the document to replace the deleted material, called modification by interlineation.

The seller initials the interlineations and signs the altered document agreeing to the terms as modified, a counteroffer technique called change-and-initial. However, all this defacing, interlineation and initialing is improper conduct. These acts wrongfully alter the contents of an original document after it has been signed and submitted.

Further, the change-and-initial method of preparing a counteroffer often creates uncertainty as to when and who placed which terms in the agreement – in a word, chaos.

Legally, the agreement is interpreted against the individual creating the uncertainty, typically the seller who countered by defacing and initialing a signed original document. [Calif. Civil Code §1654]

Related Client Q&A:

Client Q&A: How do I negotiate a counteroffer?

Analyzing the counteroffer form

When an offer or counteroffer for the purchase or lease of property is received and rejected by the property owner, the agent uses the counteroffer form published by Realty Publications, Inc. (RPI) to prepare a counteroffer to present modified terms. [See RPI Form 180]

The Counteroffer form has four sections, each with a separate purpose:

Reference to prior offer: The purpose of a counteroffer is to reference a prior offer and state the terms and conditions contrary or in addition to those in the original offer which are agreeable to the person making the counteroffer, most often the seller. [See RPI Form 1801]
The agreement offered: The offer submitted and rejected by a counteroffer has all its terms and conditions “incorporated” into the counteroffer. Terms written into the counteroffer form are additional to or in conflict with those of the offer countered. Together, the incorporated terms and the entries on the counteroffer form create the terms and conditions of the new offer. Any terms written into the counteroffer in conflict with the terms of the offer countered override and become the terms of the counteroffer. [See RPI Form 1802]
Time for acceptance: The counteroffer expires at the time and on the date stated in it for expiration. When no specific date is given, a reasonable time to accept is permitted, unless the terms incorporated included an acceptance period or the counteroffer is first withdrawn. [See RPI Form 1803]
Signatures: The participant making the counteroffer signs and dates the counteroffer. The brokers sign the counteroffer to acknowledge their role as an agent in negotiations. [See RPI Form 180]

Related article:

Form-of-the-Week: Counteroffer and Rejection of Offer — Forms 180 and 184

Analyzing the counteroffer addendum

When preparing a counteroffer and additional or modified provisions are not pre-printed copy in a boilerplate addendum but are needed, an agent uses the Addendum — Counteroffer published by RPI. The form allows the agent to add wording to the counteroffer as an attachment to the counteroffer form. [See RPI Form 180-1]

The Addendum — Counteroffer contains three sections:

Facts: The counteroffer the addendum is attached to is referenced, as well as the buyer’s and seller’s identities and real estate involved. [See RPI Form 180-11]
Agreement: The terms and conditions to be made part of the referenced counteroffer are entered. [See RPI Form 180-12]
Signatures: The person making the counteroffer which includes terms in the addendum signs and dates the form, and the person receiving the counter signs their name and dates the form to agree to the counteroffer terms. [See RPI Form 180-1]

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