Homebuying Negotiations: Responding to a Counteroffer

A home may be the biggest purchase you make in your lifetime, and the stakes are high for both the person buying the home and the person selling it. That's why it may take some negotiating to reach an agreement that both you and the seller are happy with.

The best-case scenario when you submit an offer on a home is that the seller accepts it with no conditions. However, it's normal for sellers to respond with a counteroffer, which means they're open to begin negotiations.

Negotiating with Counteroffers

A counteroffer changes one or more aspects of your original offer, and you have three options for responding:

• Accept the sellers' counteroffer.
• Reject the sellers' counteroffer.
• Present a counteroffer of your own.

If you decide to continue negotiations by presenting your own counteroffer, your counteroffer may address some but not all of the sellers' concerns. For example, you may decide to pay the higher sales price the sellers asked for, but only if they will agree to cover the closing costs or throw in the gas grill in the backyard.

You and the sellers continue negotiating until one of you accepts or rejects an offer. Then you'll be in a legally binding contract.

What Is Commonly Negotiated?

With homebuying, everything is negotiable, from repairs and closing costs to furniture and appliances. These are some of the most commonly negotiated aspects in homebuying.  

Purchase price. Your pre-approval letter from your lender will tell you the maximum you can pay for a property, but you may not need to increase the price up to your limit. Your real estate agent should be able to advise you on what makes the most sense for your budget and the local market.

Closing costs. Closing costs, which include insurance, title fees, taxes and appraisals, are often the most negotiated line item between buyers and sellers. Closing costs can add up to as much as 5% of your total loan amount. Estimate your potential closing costs with our closing costs calculator.

Closing date. This is the date that you get the keys to the home. If the sellers need time to pack and move out, they may ask for more time, for example.

Contingencies. A seller can reject or modify the contingencies, or conditions for purchase, that you included in your offer. Home inspection, appraisal and home sale are examples of contingencies. Before you consider dropping contingencies, be sure to speak with your real estate agent about the possible risks.

Earnest money deposit. Also referred to as good faith money, earnest money is the sum you put down with your offer to show the seller you're a serious buyer. Typically 1% to 2% of the purchase price, the earnest money deposit applies toward your down payment or closing costs.

Personal property. You can ask the seller to leave appliances, furniture or window treatments, for example.

Offers and counteroffers can negotiate on a mix of these factors.

Keep in Mind What You Can Afford

In addition to the pre-approval letter from your lender, you should know before you make an offer what you can realistically afford to keep a home and your finances in order.

Remember that a mortgage isn't the only expense of homeownership. Other expenses include homeowners insurance, interest, taxes, maintenance costs, utilities and unexpected repairs.

When you're negotiating for a home, stick firmly to a price point you know you can afford.

Keep in Mind What Matters to You

Go back to your homebuying wish list to have what's important top of mind.

For example, if location is the most important factor, and this home is in the perfect spot for your kids' school and public transportation, stick with the negotiating process and work with your real estate agent to get creative on your counteroffer.

However, if the home doesn't truly check off any of your wish list, and negotiations aren't going your way, maybe it's time to see what other homes are available.

Keep Your Cool

• Don't be frustrated if a seller doesn't take your first offer.
• Use the counteroffer to negotiate for what you want.
• Rely on your real estate agent's expertise to guide you through the process.
• Don't be afraid to walk away. If you haven't signed a contract, you always have the option to keep looking.