What Is a Counteroffer?

A counteroffer is a response given to an initial offer. A counteroffer means the original offer was rejected and replaced with another one. The counteroffer gives the original offeror three options: accept the counteroffer, reject it, or make another offer.

Counteroffers are prevalent in many types of business negotiations, transactions, contracts, and private and public deals between two individuals or two entities. You may find them in real estate deals, employment negotiations, car sales, private placements, mergers acquisitions, takeovers, etc.

Understanding Counteroffers

When two parties get together to negotiate a transaction or business deal, one may put an offer on the table. A counteroffer is a reply to that original offer and may change the terms of the deal, including the price. The price may be greater or less than what was originally quoted depending on who makes it. So if the person receiving the original offer doesn't accept or reject it, they may decide to renegotiate with a counteroffer. For example, Ms. X decides to put her house on the market for $300,000. Mr. Y views it and makes an offer of $285,000 instead. Ms. X decides to make a counteroffer of $295,000 instead, thus putting the onus on Mr. Y to accept, reject, or counter that offer and continue negotiations again. There is no limit to the number of times each party can counter during negotiations. When countering back and forth, each offer should present a price less than the previous offer. This conveys to the seller that the buyer is nearing the final offer. Neither party is obligated to settle until they agree on a contract, which occurs once the counteroffer is accepted. This is when a binding contract is formed. The contract is enforceable against either party. The counteroffer voids a previous offer, and the entity that presented that offer is no longer legally responsible for it.

Terms of a Counteroffer

A counteroffer may include explanations of the terms of the offer or requests for supplementary information. Finalizing counteroffer negotiations requires the buyer and offeror to accept the terms without any additional conditions or modifications.

A counteroffer is generally conditional. When the seller receives a low offer, the seller can counter with a price that is deemed reasonable. The buyer can either accept that offer or counter again. The seller can counter the offer. The person receiving the counteroffer does not have to accept it.

Employer Counteroffers

If you propose employment terms like a desired salary figure and the potential employer comes back with a counteroffer that is lower, there are a few strategies one can employ. You can often get a handle on how much an employer desires you for your knowledge, skills, and experience as well as how much they like you as an individual and potential team member. Body language, tone of voice, and phrasing can all help you make a more informed decision on how to handle a counteroffer effectively.

The first strategy is to simply take the counteroffer and accept the lower salary. If you think you were highballing your offer or if you really do not want to risk losing your dream job over tough negotiations, you may want to consider the counteroffer as good enough. The opposite strategy is to stick to your guns. Stand firm and decline the counteroffer by reiterating your original offer or terms. While it does not have to be framed as a take-it-or-leave-it, the employer will know where your salary requirements are and, if they really want you, may decide to pay up. In between these two is to meet their counteroffer in the middle. This may begin a series of back-and-forth negotiations that arrive at fair terms for all parties involved. A counteroffer may also be proposed to you by your current employer if they know that you are looking to leave and received an offer elsewhere. You can use these same tactics to respond to this counteroffer and can even use it as leverage with the potential new employer, although you can risk overplaying your hand.

Examples of Counteroffer

For example, a seller wants to sell a vehicle for $20,000. A buyer arrives and offers $15,000 for the vehicle. The offeror provides a counteroffer, asking for $16,000 with the objective of obtaining a higher price. If the offeree declines, the offeror cannot force the buyer to purchase the vehicle at $15,000, even though the buyer suggested that price.

A Counteroffer at the Workplace

Say that you are interviewing for a company that you are not really so sure you want to work at, as you like your current job but want higher pay and more time off. The new company offers you 10% higher pay and 5 extra vacation days. You tell your current employer what you now have on the table and ask them for 20% and 10 days. The employer makes a counteroffer at 15% pay and a week off, take-it-or-leave it.

The Bottom Line

A counteroffer can be used in one of two ways in business: the first is when negotiating the price for something such as a purchase or even a corporate takeover. Here, an initial offer is declined but met with a lower counteroffer. There may be a back-and-forth until an agreed-upon price is reached. In the world of employment, a counteroffer can refer to an offer made by your current employer to keep you working there after you have received an offer elsewhere.